Canadian Housing Market Following Soft-Landing Playbook

I think BMO enjoys needling those that believe a Canadian housing crash is in the works.  The latest jab at housing bears comes from BMO economist Sal Guatieri in yesterday’s issue of Focus:

For all the nail-biting over Canada’s housing market, this is where things currently stand: sales have “plunged” to normal levels, starts have “cratered” to household formation rates, and prices have “crashed” to record highs. If this is a bubble, it would appear to have a pretty thick skin.

May sales figures are out in many cities and the market “looks promising” and “is neither blooming nor swooning, but simply following the boring soft-landing playbook.”

Here’s the breakdown:

  • Calgary showed strength (no surprise here) with benchmark prices up 7% y/y
  • Both Vancouver and Toronto saw price gains for a fourth consecutive month, the latter to record highs.
  • A big surprise is that  pricey Vancouver saw its first year-over-year sales increase in more than 1½ years.  While prices are still down 4.3% from a year ago, they have clawed back some of their 5.9% peak-to-trough decline.
  • Perhaps most surprising is that Toronto condo prices jumped to record highs—if there’s one segment of the Canadian housing market that’s over-supplied, this is it.

The reason for the relative firmness in prices nationwide? BMO writes it’s because of:

  1.  supportive demand fundamentals (demographics, decent affordability in most regions, steady job growth), and
  2. supportive supply fundamentals, namely, owners face little pressure to sell at a discount (especially not after the blow-out May jobs gain).

All in, while tougher mortgage rules have taken the froth out of the market, supportive fundamentals are giving it some backbone. (Source)

Do you think it’s a little early for proclamations and celebrations of a soft-landing or is BMO correct in asserting that the housing market has underlying support?

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