Forecasters Don't Always Agree On Canada's Real Estate Future

This past Friday 20 forecasters responded to a survey on Canada?s real estate future. Most of them thought that the Canadian government has been prudent in their handling of the industry and that there is no danger of a United States type of real estate correction. One of those surveyed, Craig Alexander from Toronto Dominion Bank, noted that the correction that is coming is the curbing of the excess valuation caused by a long period of extremely low interest rates.

Alexander and others believe that over the next few years home prices throughout the country will decrease by about ten percent. Home starts are expected to slow in 2013 due to a slightly cooling market. But Alexander noted that a ten percent price decrease spread out over several years is not all that scary, but rather would be healthy for the industry.

In the United States, the crash of 2008 was caused by an out of control mortgage industry. Prices plummeted and are only now starting to come back up. Canada has avoided this scenario, but is looking at a gentler path to lower home prices. Already the home prices are starting to level out and in some cases go slightly below past rates. Even so, the national average has prices 23 percent higher than in March of 2009, sort of a pivotal point in the industry.

A survey done by Reuters noted that in 2012 housing prices were expected to increase by two percent and decrease by one percent in 2013. In Toronto, predictions are for a 5.1 percent increase in home prices by the end of 2012 and a decrease of 1.3 percent for 2013.? Vancouver is expected to see a 2.7 percent decrease in 2012 and a 3.6 percent decrease in 2013. That city is expected to see a total decrease of 12.5 percent by the end of the slide. Vancouver was and still is one of the priciest real estate markets in the country.

As far as the decrease in housing starts, in 2012?s third quarter 222,945 units were started. The prediction for the last quarter of that same year is for 200,500 units. In 2013, the first quarter is expected to see 186,900 starts while the second quarter is expecting 184,000 starts. It is a gradual decline.
How Does This Affect Economic Growth?

The economy will be somewhat affected by the decrease in housing starts. That economy is also affected by consumer spending and stimulus programs from the government, in place since 2009. But the global economy is slowing getting more stable, strengthening, so that will help bolster Canada?s economy, which is the opinion of Alexander and others.

But not everyone paints so rosy a picture. Most of the major banks in Canada are seeing the slowdown in housing starts and the decrease in home prices and believe it will be a gentle slope. Others, mostly independent analysts, predict a steeper fall with a rougher landing at the end. Capital Economics? David Madani, based in Toronto, is one of that that opinion, noting that the country should be worried about the state of the housing market.

Madani is looking at a 25 percent decrease in prices and housing starts to decrease to 150,000 in 2013. He is predicting a burst of the real estate bubble created by over building and inflated home prices, and notes that banks tend to downplay the situation. Madani noted that Canada has been building far more homes than is needed to keep up with population growth. Yet even Madani agrees that a U.S. style crash is unlikely.
Affect of Rules Change

In hopes of avoiding that United States scenario in the real estate market, Canada?s government has tightened lending rules for mortgages four separate times since 2008. The idea is to keep homeowners from taking on too much debt.

Eventually the 40 year mortgage became a maximum of 25 years. Homeowners were also limited as to how much they could borrow against their homes. Even though interest rates are expected to stay roughly the same until the middle of 2013, the changes have been effective.

Not as many people have been able to qualify for homes though. Resale homes saw a decrease of 15.1 percent in sales this past September, compared to the same month in 2011. In the third quarter of this year, the sales were down 6.5 percent from the third quarter of 2011.

September also saw a decrease in resale home prices of 0.4 percent in 2012 compared to August of the same year but those prices were still 3.6 percent higher than September of 2011. On the new home front, new homes saw price increases of 0.2 percent month over month, a trend that has been going on for the last 18 months. September new home prices for this year were also 2.4 percent higher than in September of 2011.

Source: http://allcalgaryrealestate.ca/forecasters-dont-agree-canadas-real-estate-future/

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