When even the Canadian Real Estate Association has to revise their forecast upwards, you know the housing market is exceeding expectations. Yesterday, CREA bumped up their annual sales & price forecast citing, “stronger than previously expected price growth this spring in other housing markets across the country.”
Along with the forecast revision, CREA released May’s nationwide housing figures and it’s interesting to note the spectrum of opinion across the major Canadian banks.
Let’s begin with who I believe is the most optimistic of the bunch, BMO. Once again, they didn’t miss an opportunity to poke fun at the bears. Below are some quotes taken from their research note, Cdn Home Sales-“The Ceiling Can’t Hold Us”:
Until recently, it seemed that the only debate on Canada’s housing market was whether the landing was going to be of the soft or rough variety. Well, it appears that housing may not be so keen on landing at all at this point.
Prices remain stable, perhaps maddeningly so for the legions of bubble mongers.
Making a mockery of talk of an imminent collapse, no fewer than 24 of the 26 reporting major cities posted price gains from year-ago levels in May.
Sorry to inform you, but “The Great Real Estate Crash of 2013” has been postponed until 2014, or until further notice. More seriously, we believe housing remains on track for a fabled soft landing.
Closer to the middle of spectrum and cautiously optimistic are RBC and TD.
Royal Bank of Canada
The evidence so far this year clearly indicates that the market weakening in the latter half of last year indeed stabilized in the early stages of 2013. While year-over-year comparisons still show that resales remain on a lower track than the 2012 levels, the gap is dwindling fast.
Despite our expectation for a modest strengthening of monthly resale activity during the remainder of 2013, we still expect total 2013 resales to come in 3.1% lower than in 2012. We project home prices to fall slightly by 0.4%. Markets where the economy is strongest, such as Alberta, will outperform. Conversely, local markets where affordability is poor, such as Vancouver, face greater declines.
Download RBC’s research note here
History tells us that the impact from changes to mortgage insurance rules tend to be temporary, lasting up to three quarters. This time has not been different, with the housing market now picking up momentum. Overall, the market remains well balanced, with home prices no longer growing substantially faster than prices and home sales remaining at a level that is consistent with demographics and income growth.
Looking forward, housing activity momentum is likely to be tempered by a deterioration in affordability. Canadian longer term interest rates have increased notably over the last month, which is being reflected in higher mortgage interest rates.
The Canadian housing market still appears to be clearing a soft landing, with sales and prices growing at more sustainable levels than had been the case through 2010 and 2011.
Download TD’s research note here
Undoubtedly, the bearish of the bunch would have to be Scotia. In their morning Daily Points yesterday, before May’s figures were announced, Scotia wrote this:
Are existing home sales (9amET) carving out a bottom? They have risen for two months in seasonally adjusted terms over the prior month, and it’s anybody’s guess how this morning’s May print will land (there is no available consensus)
That recent gain has some commentators prematurely declaring the housing correction to be over. This makes no sense on two counts. One is that the correction has now migrated into the new home sales market. Toronto’s new home sales are down 38% year-to-date up to April over the same period of a year ago split between a 43% drop in new low rise homes and a 33% decline in new high rise homes.
This matters much more than the resale correction that began over a year ago because of the value added in construction of new home sales as opposed to resales that are mostly just paper swaps with a few valued added services to facilitate the transaction.
Another reason is that housing corrections often last years, like the US or Toronto from 1989-1995, and this one is unlikely to be any different. Much weaker trend housing starts are on the way, first in singles as low rise sales have dropped sharply and this impacts construction volumes within weeks to months.
Next will be reduced condo construction that will be spread over years as investors have been chased away by overly rapid price gains that have had carrying costs outstripping rental incomes, and because of last July’s cessation of Ottawa’s investor immigrant program which did far more than any mortgage rule tightening in terms of condo market effects (as opposed to the impact upon the singles segment).
The recent 200,000 housing starts print was the first decent one since starts went on a rapid downward move after last summer, and may well have gone to inventories particularly in the oversupplied condo market as new supply adjusts more slowly to correcting sales.
Conspicuously absent however, was any mention of the housing statistics in Scotia’s Closing Points at the end of the day yesterday. Perhaps like CREA, they too were surprised at how the market has thus far exceeded expectations.