The future of Canada’s housing market rests in the hands of the nation’s buyers, or at least that’s what the latest housing stats would have us believe. Signs are everywhere that Canada’s once red-hot real estate market is about to freeze over, thanks to a combination of tighter mortgage rules and increasing consumer debt levels. Not only are home sales grinding to a hault, the long-booming prices are finally starting to drop.
Granted, sales always slow down as the seasons change and the temperature drops. Only time will tell whether or not spring will bring a much needed renewal to a reeling market.
Home Building Has Slowed
Data from the most recent Statistics Canada survey shows that building permits issued in Canada fell an unexpected 13.2 percent from August to September. The greatest dip since the 23.7 percent drop recorded in April 2011, was far greater than the 3.0 percent decrease that had been forecasted by market experts. This drop was fuelled primarily by a drop in non-residential construction projects. The value of residential permits actually climbed by 0.4 percent after two consecutive months of decreases. Single-family dwellings saw an increase of 3.4 percent while multi-family units dropped by 3.8 percent. Construction intentions in the non-residential sector plunged a startling 30.8 percent in September following an increase of 27.7 percent in August.
Not surprisingly, homebuilding in Canada appears to be moderating in the last quarter of 2012. This is expected to continue into the first portion of 2013. According to the Canada Mortgage and Housing Corp, existing home sales should hold steady during this time, with prices climbing at or just below the inflation rate.
Even so, the federal housing agency is also forecasting for a weaker, but still healthy, housing sector. This based on a string of data that continues to rally against a Canadian housing crash.
Even though the value of residential permits increased slightly in September, economists still feel that the effect of tighter mortgage lending regulations will continue to put a damper on residential construction projects over the near term.
Quarterly outlook stats from the CMHC shows that housing starts will be in the range of 210,800 to 216,600 units this year, with the likely outcome of roughly 213,700 starts. The rate of construction is expected to continue to slow in 2013, with starts somewhere in the vicinity of 177,300 to 209,900 with a most likely outcome of about 193,600.
Economists at CIBC World Markets expect this rate to drop even more by 2014. Recent reports predict housing starts slowing to 180,000 a year by 2014, a sharp decrease from the current range of 220,000 today. This steep decline would impact our Gross Domestic Product of 1 to 1.5 percentage points, according to CIBC. Currently, the Bank of Canada is still forecasting economic growth of 2.3 percent in 2013 and 2.4 percent in 2014.
When all is said and done, the CMHC remains positive, stating that “employment growth and net migration will help support housing starts activity going forward.” The CMHC is currently forecasting existing homes sales to slow to a range of 449,200 to 465,600 this year, estimating a likely outcome of 457,400. Optimism prevails as the CMHC expects to see a rise in sales between 433,300 to 489,700 with a likely outcome of 461,500 in 2013.
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