OTTAWA – Canada’s hot housing market is due for a soft landing that stabilizes prices, sales and new construction over the next two years, the Canada Mortgage and Housing Corp. said Monday.
The national housing agency’s first-quarter 2012 report appears to underplay fears of a sharp correction that would see prices plummet in some hot spots like Vancouver and Toronto.
“With the Canadian economy set to expand at a moderate pace and mortgage rates expected to remain low, activity levels in 2012 in both new home construction and sales of existing homes will stay close to levels seen in 2011,” CMHC deputy economist Mathieu Laberge said in a statement.
Analysts say the assessment constitutes the best of all possible outcomes for the Canadian housing market, which has seen a remarkable run-up in prices and sales since the recession to record highs.
That has left some industry observers thinking prices could drop as much as 25 per cent, according to a forecast by Capital Economics. Meanwhile, the International Monetary Fund and the Economist magazine have calculated homes in Canada are about 10 per cent overpriced.
Super-low mortgage rates and high demand have driven housing sales and prices higher, especially in large urban centres such as Toronto and Vancouver, particularly in the hot condo market.
As well, the Bank of Canada and Finance Minister Jim Flaherty have continued to warn about Canadians taking on too much mortgage debt, which is also at record levels.
Despite the warning and stiffer mortgage rules, buyers continue to line up, although the expansion has tapered off of late.
CMHC now projects the average national home price will hit $368,900 in 2012, with a projected range between $330,000 and $410,000, according to data from the Canadian Real Estate Association’s MLS service.
For 2013, that number rises to $379,000, with a range between $335,000 and $430,000.
“The moderate increases in the average MLS price are consistent with the balanced market conditions that occurred in 2011, and that are expected to continue in 2012 and 2013,” CMHC said.
Housing starts are expected to be around 190,000 units this year and 193,800 units in 2013, while existing home sales are expected at about 457,300 units in 2012 and moving a little higher to 468,200 units in 2013.
The CMHC predicted that housing starts will be in the range of 164,000 to 212,700 units in 2012, and between 168,900 and 219,300 units in 2013. Existing home sales are expected in a range from 406,000 to 504,500 units in 2012, rising to 417,600 to 517,400 units in 2013.
“I hope their forecast of (a) stabilizing housing market materializes and frankly I think the bias is a little to the weaker side,” said Benjamin Tal, a senior economist with CIBC World Markets.
“That would be a good thing,” he added. “What we need is this housing market to soften. We have a window of opportunity to allow this market to take a break … (because) interest rates are not rising any time soon.”
Tal said he would be concerned if prices and sales activity continued to climb , since that would load up Canadians with additional debt just as interest rates, and by extension debt payments, are expected to rise.
According to the CMHC forecast, Western Canada is likely to see strong growth in new housing starts, with Alberta leading the way with a 13.2 per cent increase. However, the agency said it expects housing starts in Saskatchewan to contract by about 2.7 per cent in 2013.
In Eastern Canada, all provinces are expected to see a contraction in housing starts for 2012, with “modest growth” returning to Quebec and Ontario in 2013.
The agency noted that the fate of an economic recovery in the United States, Canada’s largest trading partner, could have an immediate affect on Canada’s housing industry.
“Some upsides include the potential that the U.S. could recover more quickly than anticipated, which would be positive for U.S. employment and economic growth,” CMHC said.
“In turn, this could boost employment growth in Canada and thus lead to a stronger than expected housing market.”
Conversely, if the U.S. recovery hits a snag and emerging economies see their growth slow while Europe suffers a slowdown, that could lead to slower employment growth in Canada and place a chilling effect on the demand for housing.