Moody’s: Soft Landing Likely For Canadian Housing

Fears of a housing market crash are increasing because of continued house price rises, but Moody’s Analytics believes a soft landing is more likely.  Still, they warn that a U.S. recession would trigger a more significant price correction.

The report issued Friday states that Canada’s housing market remains aloft due to to record-low interest rates (overnight rate has been at or below 1% for over 3 years) and consumers’ willingness to increase their debt levels (household debt as a percentage of disposable income has risen 40% since 2000)

However, they “don’t believe house prices will plummet.”

Scenario 1

Prices will increase 1.1% in 2012 and essentially no price change in 2013. This baseline forecast assumes a Canadian GDP increase of 2.2% and a US GDP growth rate of 2.5% in 2012, which will “support a soft landing.”

Scenario 2

If U.S. growth slows, Moody’s Analytics believes Canadian house prices would fall 0.24% in 2012 and 1.7% in 2013.

Scenario 3

If the U.S. falls into an outright recession, Canadian house prices would fall 5.6% in 2012 and 10.3% in 2013. Moody’s Analytics believes there’s a 20% chance that this recession scenario plays out.

Moody’s Analytics, a division of Moody’s Corporation that provides expertise in economic and consumer credit analytics, credit research and risk measurement, enterprise risk management and structured analytics and valuation. Commentary produced by Moody’s Analytics is independent and does not reflect the opinions of Moody’s Investors Service Inc., the credit ratings agency, which is also a subsidiary of Moody’s Corporation.

Source: Financial Post, March 23, 2012

7 responses to “Moody’s: Soft Landing Likely For Canadian Housing

  1. Pingback: Moody’s: Soft Landing Likely For Canadian Housing

  2. How about Option 4 , nothing happens and we still keep on trucking. My thoughts over the last 15 years that things would slow down and prices would come down. But every year things in Calgary buck the trend, until oil companies layoff I see no change. The only thing I see is people not on the industry are being left behind and are finding it harder to live in Calgary. Everything up even rent is getting expensive for a family.

  3. You thought Calgary home prices were too high 15 years ago?

  4. What an unbelievable surge in sale volume yoy 40%! Mike, do realtors worry about demand being pulled forward because of ultra low limited interest rate deals? Any guess what happens after these offers expire and new regulatory rules kick in?

  5. Hi Len,

    Just to clarify, the 40% yoy increase was a weekly comparison. Month-to-date, SFH home sales are still up a respectable 11.9% from last March. On the other hand, Condo sales are flat (apt-style: -0.34%, townhomes: -7.14%)

    Mr. Flaherty has been sort of cryptic as to what, if any, regulatory changes he will be introducing…

  6. this is called the “denial” stage.

    No matter how you slice it now the game is over and credit contraction is finally underway and rightly so.

  7. Hi Mike – yes it was the weekly comparison that was eye popping – at least for the SFH. 12% increase in sales is respectable indeed.

    My only direct exprience in housing is in the rental market. Renters are in bidding wars in desirable locations. Unbelievable. I have never seen mass open houses for rentals where 12 parties are sucking up to the landlords – crazy.

    Flaherty already signalled no policy changes in the budget. He is shrinking the CMHC’s balance sheet dramatically. Bank regulators are also bringing out new regs for the banks. Time will tell if these will cool the housing market.

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