Kamloops Real Estate Blog

The Canadian Real Estate Association released this article on February 8th, 2011. Click on the images below to enlarge.

OTTAWA – February 8, 2011 – The Canadian Real Estate Association (CREA) has revised its 2011 forecast for home sales activity via the Multiple Listing Service® (MLS®) Systems of Canadian real estate Boards and Associations, and extended it to 2012.

“Home buyers recognize that low mortgage interest rates represent a once in a lifetime opportunity. At the same time, they expect that rates will rise, so they’re doing their homework in order to understand what it could mean in terms of higher mortgage payments down the road before they make an offer,” said Georges Pahud, CREA President. “The housing market and buyer psychology is different now than it was at the beginning of last year, so buyers and sellers would do well to consult their REALTOR® to understand local market trends.”

The upward revision to CREA’s forecast for 2011 reflects recent improvements in the consensus economic outlook and a further expected improvement in consumer confidence. National sales activity is now expected to reach 439,900 units in 2011, representing an annual decline of 1.6 per cent. In 2012, CREA forecasts that national sales activity will rebound by three per cent to 453,300 units, which is roughly on par with the ten year average.

“Recent additional changes to mortgage regulations will further ensure that buyers don’t buy more home than they can afford when interest rates inevitably rise,” said Klump. “The announcement of the new changes to mortgage regulations will likely bring forward some sales into the first quarter that would have otherwise occurred later in the year, particularly in some of Canada’s more expensive housing markets. This is expected to produce a milder version of the volatility in sales activity that we saw last year which resulted from additional transitory factors.”

Three transitory factors contributed to volatility in sales activity last year: changes in mortgage regulations announced last February, the early withdrawal by the Bank of Canada of its conditional commitment to keep interest rates on hold until the second half of 2010, and the introduction of the HST in BC and Ontario during the summer of 2010.

CREA expects that home sales activity will gain traction after dipping in the second quarter as the economic recovery and job growth continue, incomes grow, and consumer confidence further improves. “Even though mortgage interest rates are expected to rise later this year, they will still be within short reach of current levels and remain supportive for housing market activity. Strengthening economic fundamentals will keep the housing market in balance, which will keep home prices stable,” said Klump.

The national average home price is forecast to rise 1.3 per cent in 2011 and 2012, to $343,300 and $347,900 respectively. Average price is expected to rise modestly in most provinces, reflecting the continuation of a healthy balance between supply of, and demand for, homes listed for sale. Although the supply of new listings is expected to trend higher, the expected continuation of sellers’ market conditions in Manitoba is forecast to result in a bigger percentage increase in average price in 2011 and 2012 compared to other provinces.

* Provincial weighted average price for Quebec; does not affect unweighted national average price calculations. Information on Quebec’s weighted average price calculation can be found at:
http://www.fciq.ca/immobilier-economiste.php

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This article appeared in the Globe and Mail on February 3, 2011. It was written by Steve Ladurantaye the Globe and Mail’s real estate reporter.

Higher interest rates could “easily” cause Canadian home prices to collapse, Capital Economics warned in a bleak report that suggests the housing market is likely to suffer the same sort of crash that has plagued countries such as the United States. The report suggests that house prices in Canada have climbed at the same pace as the United States, but have not fallen at the same rate. In the United States, some markets have seen prices fall as much as 50 per cent through the recession.

As the Bank of Canada raises interest rates, mortgages will become more expensive for consumers. Add inflation to the mix, and Capital Economics predicts prices could fall 25 per cent over the “next few years.”

“Even small rises in official interest rates have been shown to have a big effect on homeowner confidence in other countries under similar circumstances as they can change perceptions toward the housing market very quickly,” Capital Economics economist David Madani said. “If the Bank of Canada does resume its monetary tightening this year, this could easily prove to be a tipping point for a house price collapse.”

Other market watchers expect higher rates to hinder price gains, but few are calling for as sharp a drop. The Canadian Real Estate Association expects sales to fall 9 per cent this year, for example, but prices are only expected to drop 1.3 per cent. It hasn’t issued a forecast beyond 2011.

Bank of Nova Scotia economist Adrienne Warren said it’s difficult to compare the Canadian situation with the American because Canada’s gains have been based on a strong economy – relatively speaking – as opposed to easy lending.

“We lack the triggers that prompted the U.S. market to crash,” she said. “I think what you see is prices staying flat as incomes rise over the next few years.” Such a scenario could lead to home prices that are flat over the next five years, as personal incomes catch up.

“I think some markets may be overvalued and they can’t stay that way forever,” she said. “If you look at the longer-term trend in ratios, we could say things are overvalued by about 10 per cent, which is typical at the end of a boom. But there are so many different measures – it’s just safe to say that eventually you see a softening in prices.”

The country’s bank economists have varied short-term forecasts, but there are no expectations among the largest forecasters that a crash is inevitable, or even likely.

Some have suggested drops of 10 per cent may be in order next year as mortgage rates move higher and households struggle to service record debt loads, and the Bank of Canada specifically mentioned the prospect of “a more pronounced correction in the Canadian housing market” as one of three key risks to the country’s economy. However, real estate sales data from the autumn market showed that fewer houses have been listed and prices were largely unchanged from a year ago.

Capital Economics chief concern is that as the central bank raises rates, variable-rate mortgages become more expensive and homeowners could find themselves priced out of their homes. Fixed-rate mortgages are tied to government bond yields, but would move in the same general direction. If a homeowner is already stretched financially, any hike could prove problematic.

However, a survey by the Canadian Association of Mortgage Professionals released late last year showed that Canadians are confident they could shoulder higher mortgage payments without too much difficulty, with 84 per cent saying a $300 monthly increase was no problem.

If prices do fall as far as Mr. Madani predicts, “the knock-on effects to consumer spending and housing investment could be significant and perhaps even strong enough to push the economy into another recession,” he said.

Capital Economics also warns that a crash in prices could cost Canada Mortgage and Housing Corp., which insures high loan-to-value mortgages, a loss of as much as $10-billion.

In January, the federal government shortened the maximum amortization period for mortgages to 30 years from 35 to rein in Canadians from taking on more debt at a time when it is at record highs. While most private sector watchers expect the market to pull back in the second half of this year after a strong two-year run, the Capital Economics call for a 25-per-cent drop is the harshest.

After hitting record highs in May, the Canadian market did slow down, and ground to a halt across most of the country through the summer. Recent data from the Canadian Real Estate Association has many economists predicting a “soft landing,” however, with activity returning at a lower level and prices holding steady rather than rocketing higher each month as they have through the recovery.

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