CIBC: “Canadian Housing Market Is Softening”

“There are clear signs that the Canadian housing market is softening,” according to a brief note released by CIBC today.

CIBC also says that the data suggests that “the surge in sales of high–end properties seen in early 2011 is unlikely to repeat—a factor that will work as a negative for prices in the near term. In fact, it is highly probable that the first quarter of 2012 will see the first year-over-year decline in prices since the recession.”

Although CIBC does not foresee a crash, they believe prices will level off in the near future and “start trending downward modestly.”  Longer-term, as interest rates rise the most likely scenario is that prices will decline,  “probably in the magnitude of 10%-15%.”

Indeed a softening in house prices in the next year or so is a necessary condition for such a soft-landing scenario. If the pace of house price increases accelerates during that period, then a year or two from now the likelihood of a violent price correction will be higher than it is now.

Read the research note here

TD foresees a similar pullback in house prices in today’s release as well:

Despite 2011 having had some nasty twists and turns for the global economy and financial markets, Canada’s housing market managed to turn out a respectable 2.2% gain in sales and 7.2% gain in prices relative to 2010. This speaks to both the relative stability of the Canadian economy and the confidence of Canadian consumers.

However, 2012 is likely going to be a bumpy ride as Canada is not without its share of headwinds going forward. The first half of this year will likely see housing activity pullback further from its current level alongside both global and domestic economic conditions, while the second half of the year is likely to see some improvement as those same factors improve.

In general, the persistence of a low interest rate environment through 2012 should help keep the housing market aloft as buyers continue to take advantage of fresh lows in mortgage rates. However, this will only delay the inevitable as the normalization in interest rates in 2013, which will lead to a more sustained correction in both sales and prices

Read the report here

In BMO’s reporting of the latest housing sales stats, they find the housing market “is broadly balanced on a national basis. The supply of existing homes for sale is a fully unremarkable 5.8 months, and the ratio of new listings to sales is also well within long‐term norms.”

BMO predicts an uneventful “flat” year:

 Debt‐heavy households are expected to curb their appetite for mortgages, pointing to some further moderation in housing in 2012. We look for both sales and prices to be roughly flat this year. That could be just what the policy doctor ordered, allowing incomes to catch up to higher prices.

Update: January 17, 2012

Here’s Scotia Capitals viewpoint in their latest  housing news flash:

Historically low interest rates remain a powerful draw for Canadian homebuyers and real estate investors. Nonetheless, we expect the weakening trend in employment growth since the late summer could moderate demand somewhat in the coming months. With market conditions largely balanced, look for average home prices to be fairly flat in the year ahead.

And RBC’s:

The picture painted by the latest statistics on Canadian housing continues to be consistent with an overall market that is showing moderation on nearly all fronts. Home resales grew a little stronger (2.2%) than we expected (1.4%) last year but not dangerously so. At the end of 2011, the national and the vast majority of local markets remained balanced.

This is keeping price gains on a moderating path. The earlier troubling surge in prices in Vancouver is so far unwinding in an orderly fashion – although very strained affordability in this market will maintain intense stress on local homebuyers in the near term.

We expect that widespread moderation will be sustained in 2012. Our latest projections published in November call for minimal growth in both home resales (0.4%) and prices (0.5%) overall in Canada, with strength in markets such as Alberta and Saskatchewan more than offsetting some softening in British Columbia.

Their chart shows that Vancouver had the greatest annual price gain of +14.3%, while Edmonton prices were down -0.7%.

10 responses to “CIBC: “Canadian Housing Market Is Softening”

  1. Well it seems the slowdown has begun, we have chatted about it for years and finally the numbers are telling us it has started. I agree with BMO on this one I think it will be a flat year. I think it is now a hold and see for those wishing to buy , Prices will decline around 2 to 7 % by Sept. sales will be down 5% for the year. I know I am making a prediction here but this should get some reactions from the bloggers

  2. Hello OneofAKind,

    Thanks for sharing. Is that your prediction for Calgary or the national housing market? If it’s for Calgary, what do you think will be causing the downward pressure on prices & sales?

    CREB will be releasing their 2012 Forecast tomorrow, so check back to see what they think. Although, predicting what a real estate agent will forecast is really quite simple 😛 Here’s a sneak peak:

    New CREB president forecasts upswing in real estate market
    Calgary Herald, January 16, 2012

    Moderate growth eases concern of crash in housing market
    Globe & Mail, January 17, 2012
    (Calgary referenced near the end of the article)

  3. Canada Bubble Seen as IMF Risk With Record Low Rates: Mortgages
    Bloomberg January 17, 2012

    “It could increase the housing bubble,” said Sheryl King, head of Canadian economics at Bank of America Corp., who estimates the country’s housing prices are overvalued by about 10 percent. “The lower interest rates are, the more speculative demand you will have in the market.”

    “Investor-owned condo properties have got to be a cause for concern, just because of supply and demand,” Bank of Montreal Chief Executive Officer William Downe said Jan. 10 at a banking conference in Toronto. Royal Bank CEO Gordon Nixon said “there’s no question” that the condo markets in Vancouver and Toronto are the most vulnerable in the country.

    Read entire article here

  4. Hey Mike,
    I would have agreed with ‘one of kind’ on the pricing front here in Calgary. Except that those new 2.99% teaser rates will entice more home buying.
    I am a firm believer that ever decreasing interest rates,in directly correlated to increasing home prices. Not from the perspective of having the high net-worth people causing the relationship in Sales prices, but from the entry level standpoint. I do think that prices start with first-time buyer affordability (unfortunately that agrees with CREB) and the belief that the average person really doesn’t understand simple finance (myself included until i took it upon myself to read/educate).

    using ING calculators
    $50k income @3.34 5yr/25 qualifies for 251K mortgage = $1232/month
    if interest rates were 7%, same $1232 payment = 180k mortgage or 28% drop (just for information).
    If rates at 2.99%, 50k income at $1232/month = $261k mortgage (~5% up).

    Given the above, what would the cost of 1 bedroom, 500-700 Sq*Ft condos (resale, not speculative new builds) have to be for first time buyers to get into the market?? I haven’t look much in the past 4-5 years, but i would imagine that entry level used condo’s are going for the $240,000-270,000 mark.
    Now with 2.99% options. those same kids can now pay $10,000 more, so a smart seller (if in a sellers market) would increase asking price by $10k. OR. now kids making $48,000 can now enter the market (assuming $1232 was the floor price), increase the % of the population able to buy entry level condos and thus spiking demand. Overall home ownership goes up.

    Conclusion:
    i thought the Calgary market by price, would have gone down slightly for 2012 year by 3-5% (look at your january prices already mid-month, big drop in sales and pricing). however, if this 2.99% mortgage rates stick, than the additional buyers to enter the market will off-set the potential Price decrease expected, making it “another flat year” (5% loss, with increase of 5% more affordability becomes a wash). however, if the interest rates are just one month promotion as some of the banks are stating, then it will be a mote point and an overall decrease will occur. There will be Spike in condo sales for Feb due to 2.99%, then back to the mean.
    $2.47 natural Gas and $100 oil prices, does not encourage mass hiring in calgary oil and gas majors, gas is operationally a loss. Fort Mac may still expand, not conventional drilling in Calgary.

  5. Thanks for your input, Koz! 🙂

    Flaherty Keeping Wary Eye on Housing Market
    Globe & Mail

    Mortgage credit, which accounts for 69 per cent of total household credit, “shows no signs of slowing in the near term,” said National Bank Financial analyst Peter Routledge.

    “It would be great if everyone just settled down and we saw housing come off 5 or 10 per cent and we kept having an economy that was growing but household credit levelled off, and that would be what I call a soft deleveraging,” he said in an interview. “But we’re not going to have it. And so, I think folks should prepare for – not this year, but somewhere down the line – a more disruptive resolution.”

    Read the entire article

  6. Mike I am referring to Canada as a whole , I think this downward pressure will come as a wave to cities like Vancouver and TO . Calgary will join in on the decline and should be close to those numbers . I don’t see a big sell off but a downward correction for sure.
    From what I see the contraction in prices and location selling has started . So those high end, overpriced homes in Calgary subs are going to take hit.

    Love guessing LOL

  7. Hi Mike,

    I just quickly looked up the GDP distribution for Calgary by industry: the Fire sector was almost 20% of GDP for 2010, add construction at another 7% and it is easy to see that cheap credit is a predictor as well as the driver for the overall economic health of Calgary: a complex circular self-reinforcing system. Flat sales and prices would be a success!

    Pull the legs from under the perception that “housing always goes up in the long term” and or restrict access to cheap credit and our bloated Ponzi financial system will collapse like everywhere else in the world. One of the astonishing things is that financial engineers who are experts on risk ever considered the self-perpetuating financial system as linear with normal distribution of risk. The system is circular and thus very vulnerable to violent slippage: seen now in so many places around the globe that it is too redundant to even mention here.

    It seems that that is not the argument anymore among the Canadian financial elites – they are coming out with warnings – financial house after financial house; the argument lies in the timing. Forecasts are completely meaningless as complex interdependent systems don’t calmly descend into some lower plateau – they tend to slip violently before they settle into a much different configuration. At this historic time of record debt load, melt up in housing prices seems unlikely but people are so keen on the idea of money for nothing that outcomes are unpredictable until physical reality of limits reasserts itself.

    Just some thoughts I have and ideas I have gleaned from the intertubes that really make sense to me, not likely many others though and that is fine. Just wanted to share.

    Stay safe and warm out there!

  8. Thanks for sharing your thoughts with us, Len. Stay warm as well! 🙂

  9. Real Estate Agent in Newark

    Hi Mike I have to appreciate for your hard work to collect this valuable data…. Keep up the good work. The data you shared with us is very informative. I think the housing market will improve along with the economy of the country. Maybe after a couple of years the housing market will be quite interesting where both buyers and the sellers will get good deal for the property.

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