‘Soft landing’ for Canada’s Housing Market in 2013
The concern in the early part of 2013 was whether or not Canada had a housing market bubble and if it would lead to a hard landing.
December data on home sales, prices, and housing starts indicate that Canada’s housing market can be characterized as balanced. Certain key housing metrics are close to long-run averages.
Canadian home sales in December dipped for a third straight month falling 1.8 percent, according to a news release from the Canadian Real Estate Association (CREA) on Wednesday.
“Activity has gradually eased back from stronger-than-expected levels last summer and is now roughly in line with the 10-year monthly average,” said CREA President Laura Leyser.
CREA also reported that the Multiple Listing Service Home Price Index (MLS HPI) rose 4.3 percent year over year in December. The MLS HPI increased most in Calgary (8.7 percent) followed by Toronto (6.3 percent).
Another measure of housing prices, the Teranet-National Bank House Price Index indicated on Tuesday that home prices moved higher by 3.8 percent for 2013 as compared to 3.1 percent in 2012.
The downside to the report is that the increase exceeding the national average came from only Calgary, Vancouver, and Toronto. According to National Bank, the other eight regions had an overall price increase of just 1.2 percent.
Due to the decrease in affordability caused by higher mortgage rates, National Bank writes, “We believe that overall in Canada, house price increases in 2014 will barely cover CPI inflation [about 1.5 percent].”
Newly listed homes fell 4.3 percent from November to December. “New supply was down in two-thirds of all local markets,” according to CREA. Correspondingly, the national sales-to-new listings ratio increased to 55 percent, which is still in that 40 to 60 percent balanced territory. This has been the case since 2010 for this ratio.
So despite falling sales activity, prices are rising driven by tighter supply conditions in certain large markets.
“Look for current balanced conditions and somewhat higher interest rates to lead to steady sales this year, with price growth tucked neatly below the rate of income growth,” wrote Bank of Montreal on Wednesday in a research note.
Housing starts ended the year with a print of 189.7k in December, down 4.1 percent from November’s reading of 197.8k, according to Canada Mortgage and Housing Corp. on Jan. 9. Market expectations were for a 190.0k reading in the month.
So for 2013, housing starts averaged 188k units, down 12.7 percent from 2012, which was a five-year high. Housing starts got off to a very slow start early in 2013 and the annual level of 188k is the lowest since 2009, according to Royal Bank.
Toronto Dominion Securities is forecasting the level of starts to fall further to 179k this year and 165k next year.
“We expect that the gradual grind higher in yields this year driven in large part by both a stronger U.S. economy and a tapering of asset purchases by the Federal Reserve will drive a more sustained pullback in construction,” wrote TD Securities on Jan. 9.
Royal Bank forecasts a transition to 182k units in 2014 and 174k in 2015.
Canada’s housing market is no longer the predominant focus of policymakers and for good reason, given that the evolution of sales, starts, and prices is constructive.