Canada’s Goldilocks housing market: ‘Balanced and well-behaved,’ pickup seen in 2014

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Home sales forecast to rise
Canada’s housing market may well be enjoying a Goldilocks moment: Not too hot, not too cold.

“It’s a balanced and well-behaved market,” Robert Kavcic of BMO Nesbitt Burns said today after the Canadian Real Estate Association released its July sales report and Canada Mortgage and Housing Corp. unveiled its latest forecast.

“If anything, I think policy makers may be a little bit surprised at how housing numbers have bounced back since the winter,” Mr. Kavcic said.

He was referring to the fact that new mortgage rules introduced just over a year ago by Finance Minister Jim Flaherty cooled the market rapidly. But then, it picked right back up again, though is still below last year’s level and likely to be kept in line by the rising morning rates.

Today’s report from CREA showed sales inched up in July by 0.2 per cent from June, though were up 9.4 per cent from a year ago.

The national average price rose 8.4 per cent from a year earlier to $382,373, while the Multiple Listings Service home price index, which strips out how regional differences can skew an overall reading, showed a rise of 2.7 per cent over the 12 months.

Robert Hogue of Royal Bank of Canada said July’s numbers match a 10-year average, which basically means that the stronger market of the last few months “was no fluke and that last year’s slowing was not a prelude to a major correction.”

So far this year, CREA said, home sales of 284,865 are 4.6 per cent below the levels of last year.

Obviously, some markets are hotter than others.

“Regionally, a big story has been the snap-back in sales activity in Vancouver, a market that was all but left for dead by the housing bears,” said Mr. Kavcic.

“Sales are now up 40 per cent year-over-year and closing in on the 10-year average. With new listings down more than 10 per cent year-over-year, the market balance has improved significantly, and prices appear to have found a floor (the seasonally-adjusted MLS HPI has risen in three straight months).”

Sales in Calgary are up almost 19 per cent from a year earlier, in Edmonton almost 24 per cent, and in Toronto almost 13 per cent.

“Note that Toronto’s market balance is right in-line with the decade average, and the MLS HPI has gained some momentum in recent months, now up 3.4 per cent year-over-year (with both the detached and condo segments posting gains).”

Separately today, CMHC said it believes the real estate market is stabilizing, and will pick up steam next year as the jobs market improves along with the economy.

In its new forecast, the housing agency projected resales this year will be about the same those of 2012, and will rise in 2014, while home construction slips this year but picks up next.

Notably, it also predicts a 2.7 per cent rise in house prices this year, and 2.1 per cent in 2014.

Here are the highlights of today’s report:

  • Resales this year will range between 431,600 and 466,200, which means a point forecast of 448,900, not that far off last year’s 453,372. Sales next year will range between 437,700 and 497,500, with a point forecast of 467,600.

  • Housing starts will slip to between 177,100 and 188,500 this year, or a point forecast of 182,800. That would be down from last year’s 214,827. But they should rise next year to between 165,600 and 207,600 for a point forecast of 186,600, CMHC said. That’s actually lower than an earlier projection.

  • The average price on the Multiple Listings Service is expected to climb to between $369,100 and $380,500 this year, and to between $371,700 and $393,900 in 2014. That would see the point forecast rising to $374,800 this year, and $382,800 next year.

“CMHC expects single-detached units and housing units built in the Western provinces to account for a higher share of total housing starts over the forecast horizon,” CMHC’s deputy chief economist, Mathieu Laberge, said in the report.

Yesterday, the latest showing of the Teranet-National Bank home price index showed prices rising by 1.9 per cent in July from a year earlier, a slightly faster annual pace than June’s 1.8 per cent, though they slipped in Vancouver and Victoria

“In recent months, compositionally-adjusted home price growth has been accelerating, but only modestly as opposed to being on a tear,” said Sonya Gulati of Toronto-Dominion Bank.

“Price growth in the 2-per-cent to 3-per-cent range is well below the 6-per-cent annual average seen from 2006-12,” she added in a research note.

“However, the current pace of growth is generally in line with prevailing headline inflation. This is important for individuals’ sense of their own wealth. In turn, a homeowner need not have to cut back on spending to compensate for a decline in the value of their own home.”

Ms. Gulati noted the recent increase in mortgage rates, which has dented affordability somewhat.

“This should keep a lid on sales growth in the second half of the year, but positive annual sales gains are slated for 2014,” she said.

“Price growth ought to see some weakness in 2014, as the supply of new and resale homes creep up.”

Michael Babad, The Globe and Mail

Published Thursday, Aug. 15 2013

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