Canadian home prices will drop 10% to 15% “over time” as mortgage rates rise and supply swells, said Sadiq Adatia, chief investment officer of Sun Life Global Investments Inc.
“I don’t think the demand is going to be there for housing,” Adatia, who manages about $6.4-billion at Sun Life Global, a unit of Sun Life Financial Inc.
The recent upswing in housing activity is being driven by buyers rushing in as banks raise borrowing costs, Adatia said Thursday at the Bloomberg Canadian fixed-income conference in New York.
“I do think it’s a dead cat bounce,” he said.
Home sales surged in Canada’s two largest markets in August. Sales rose 21% to 7,569 units in Toronto from a year ago, according to the Toronto Real Estate Board, and Vancouver existing home sales surged 53%, said that city’s real estate board.
The average price of a home sold in Toronto was $503,094 in August, the Toronto realtors group said.
Home prices rose 2.3% in August from the year-ago period, according to the Teranet-National Bank Composite House Price Index released today. Toronto prices advanced 3.8% from a year ago, while Vancouver housing prices fell 0.1% in the month from last year.
The country’s housing market will likely experience a so-called “soft landing,” as the near-record household debt-to- income ratio continues to constrain construction, said Julien Reynaud, desk officer for Canada at the International Monetary Fund.
Canada’s economy is slowing as its Group of Seven peers show signs of improvement. Output growth eased to a 1.75% pace in the second quarter while the U.S. expanded 2.5%. The country’s jobless rate will exceed the U.S. next year for the first time since 2008 as hiring slows and the Bank of Canada will delay raising rates until the fourth quarter of next year, according to a Bloomberg economist survey.
The slowdown presents the ideal opportunity for investors to plan a Canadian portfolio and line up asset allocations for when the economy picks up, said John Cerra, a portfolio manager at TIAA-CREF, a New York-based financial services firm which has US$523-billion in assets.