The Canada Mortgage and Housing Corporation released its second quarter housing market outlook today, stating that housing starts will likely moderate by the end of the year. While the market has remained hot through the first half of 2012, the Housing Corp. believes that both new and existing home market activity will eventually slow and even out.
Housing starts are expected in the range of 182,300 to 220,600 units this year, which is up from the roughly 164,000 to 212,700 forecasted back in 2012. The CMHC’s deputy chief economist, Mathieu Laberge, attributes this unexpected growth to condo construction, noting that the numbers varied significantly from month to month.
In a statement released Thursday morning, the CMHC admitted that, while economic conditions could continue to support the growth and market demand, Laberge thought it an unlikely scenario. With that being said, the CMHC still anticipates a fair amount of activity. Analysts are forecasting that the housing starts for 2013 will range between 175,100 and 213,500 units compared with an earlier estimated of 168,900 and 219,300. Furthermore, the CMHC forecasts that the number of existing home sales will be in the range of 431,300 to 516,100 units in 2012 and then roughly the same next year (between 431,300 and 522,400).
This suggests that the average MLS (Multiple Listing Service) price will range between $341,100 and $406,700 this year and between $346,000 and $419,900 next year. The moderate increase in the average price (2 to 3 percent) is consistent with balanced market conditions.
The Numbers from Coast to Coast
Eastern Canada: Over the course of 2012, all six eastern provinces, with the exception of Ontario, are expected to experience a contraction in housing starts. CMHC expects this to continue into 2013. It’s forecasted that Quebec will be the lone eastern province to post gains at the end of the year.
Western Canada: All four western provinces are expected to see growth in housing starts in 2012. Alberta will lead the way at just under 20 percent growth. Forecasts show that Saskatchewan will be the only eastern province to see negative growth, at approximately -6.3 percent.
Understanding the Context
CMHC’s announcement came on the heels of a Statistics Canada report that announced a 0.2 percent rise in April’s housing price index. On a year-over-year basis, the index increased 2.5 percent in April – that’s on top of a 2.6 increase in March. Not surprisingly, analysts feel that the market simply cannot sustain this level of growth. Strong markets in Toronto, Oshawa and Edmonton were the main contributors to the increase, while other urban areas like St. John’s, St. Catherines, and Windsor all reported price declines of roughly 0.1 percent.
Are We In the Middle of An Overvalued Market?
The staying power of low interest rates has continued to strengthen the housing market, but for many analysts it’s all a false sense of security. If the housing market were to moderate too quickly, homeowners would be vulnerable to the downturn, especially those who have used low interest rates to bite off more debt than they can realistically stomach.
Homeowners and mortgage seekers can download the full CMHC Mark Analysis reports online.