Canadian Housing Market Projected to Moderate
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UPDATED: Nov 5, 2012
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Reports released today state that Canada’s new housing market is expected to moderate in 2012 and 2013. Additionally, the existing housing market is expected to remain steady, at or slightly below inflation, according to the Canada Mortgage and Housing Corporation (CMHC).
The CMHC said housing starts will be in the range of 210,800 to 216,600 in 2012, with a point forecast of 213,700. Home construction is projected to continually slow into 2013, with ranges of 177,300 to 209,900 with a point forecast of 193,600. Existing home sales are projected to slow to a range of 449,200 to 465,600 with a point forecast of 457,400 units for 2012. Home sales, fueled by mortgage loans, are expected to increase in 2013, with a point forecast of 461,500 units.
“A weaker outlook for global economic conditions and the waning of the effect of pre-sales from late 2010 and early 2011, which contributed to support multi-family starts this year, will bring moderation in housing starts next year,” Mathieu Laberge, Deputy Chief Economist for CMHC, said in the agency’s fourth-quarter release. “Nevertheless, employment growth and net migration will help support housing starts activity going forward.”
But not everyone agrees with the forecasts.
Benjamin Tal, an economist with Canadian bank CIBC, reported this week that “in a final analysis, not all is well in the Canadian housing market.” According to Tal, prices have been overshot in cities such as Toronto and Vancouver. He predicts that slower sales will be followed by lowered prices in many Canadian cities.
Even with dismal and uncertain predictions, the outcome could be different than the American market. Currently, Canadians have more household debt than Americans did before the U.S. housing crash. As a preventative measure, the Canadian government has restricted mortgage lending rules four times in the past four years. As a result, the Canadian standards for mortgage loans have been higher. Additionally, borrowers and government agencies have been more cautious about mortgage loans. In 2011 and part of 2012, the housing market in Canada was strong. After the added restrictions by the government, the market slowed down.
Canada’s five major banks, which handle the majority of the country’s mortgage loans, have focused on other financial aspects in order to ride them through this time. Instead of focusing on mortgage loans, they have promoted credit cards and auto loans, according to Reuters.
The newest change in lending standards, which took effect in July, forced buyers to cut back on their budget. It also inhibited some buyers from even entering the market. Some economists and real estate agents in Canada approved the drastic measures by the government. Ron Carroll, a real estate agent in Toronto, applauded the move.
“It’s had a definite impact on first-time buyers. Money is almost free, but you shouldn’t give them too much rope,” he said to Reuters.