This has been a week of reports – all confirming a cooler housing market. On Tuesday April 9, the Canada Mortgage and Housing Corporation (CMHC) reported housing starts were weaker than expected, although edging higher in March. A Statistics Canada report showed the value of Canadian building permits rose a weaker-than-expected 1.7% in February.
BMO Capital Markets senior economist Robert Kavcic sees the housing starts report as a “soft landing” he said in a Globe and Mail interview, noting that, “starts have receded to just above levels seen two years ago.”
In a Royal Bank poll, 15% of those surveyed say they’re likely to buy in the next two years, a drop from 27% from the previous year. Analysts suggest the reason for the delay is that Canadians are paying down other non-mortgage debts. This was proven correct in yet another report, this time from CIBC, that found homeowners are tackling other debts and don’t think they’ll be mortgage-free until they’re 57, which is two years longer than what they expected last year.
A year ago Canada was in the midst of a hot real estate market. Now the Canadian Real Estate Association (CREA) is reporting that actual activity has declined as much as 15.8% below last year’s levels.
We’re also seeing a wide variation in housing prices across Canada. A report by Royal LePage found that prices were up year-over-year nationally, with the exception of Vancouver, Victoria and Saint John, N.B., which had year-over-year price declines.
The once booming real estate sector has turned into a deep housing slump. Even the Spring market has not rebounded as expected. The International Monetary Fund still believes the market is somewhat overvalued, as do many economists. The new mortgage-insurance rules have indeed impacted the market, especially for the first time home buyers. Many analysts suggest the market was correcting itself,that the government’s rule changes were perhaps unnecessary, and may have been the tipping point.
There is no arguing that the market has cooled down. Any hopes of a big rebound this year seems unlikely. So the big question is how long this slowdown will last. For that answer we need to look at both the Canadian and U.S. economies.
Both countries are showing signs of weakness in job creation. Consumer confidence is down; manufacturing is weak. Both economies are expected to grow a sluggish pace of under 2% this year. The Canadian government and the Bank of Canada have consistently lowered their growth prediction as reports are released. The trade gap in Canada has widened and will likely get worse, given the weaker U.S economy – Canada’s major trading partner. There is, however, a bright light –new home construction in the U.S.is increasing -- which is good for our exports.
According to Benjamin Tal, Deputy Chief Economist with CIBC in a weekly Market Insight Report, the economy will remain sluggish until the end of 2013. Given that, like a big ship trying to turn in the middle of the ocean, we think it’s safe to say that it will take until well into 2014 for the economy and the housing market to come alive again.