#newwest Home resales increased for the eighth time in the past nine months in Canada in October. Figures released this morning by the Canadian Real Estate Association (CREA) showed that the overall tone of Canada’s housing market continued to be quite brisk in the latest month with the level of home resale activity the second highest since early 2010. Fairly broad-based gains across local markets—including in ‘hot’ Calgary, Vancouver and Toronto—contributed to a 0.7% month-to-month advance in October, which reversed about half of the 1.4% decline registered in September. Home prices rose at a marginally faster pace in October overall in Canada (up 5.5% from a year ago, based on the MLS HPI), reflecting the particularly strong market conditions in Calgary, Vancouver and Toronto where sellers continue to hold the upper hand. The pace of price increases was more subdued in other markets—there were even declines in Regina and Saskatoon—consistent with steady balance between demand and supply that still characterizes the majority of areas across the country. Today’s data offers very little to alter the housing picture that has prevailed in Canada since spring: robust activity in a trio of ‘hot’ markets—namely Calgary, Toronto and Vancouver—continues to overshadow balanced or soft conditions elsewhere in the country. There is also little evidence that this picture is about to change imminently. The hot markets continue to march at the beat of their own drums, supported by favourable demographic and economic factors. Nonetheless, we believe that part of the vigour since spring was attributed to unexpected declines in fixed mortgage rates earlier this year and that the boost these drops provided to homebuyer demand recently will dissipate in the months ahead. In fact, we expect that interest rates will become a dampening factor during the coming year. We anticipate the Bank of Canada to raise its overnight rate in mid-2015, and longer-term rates to start their upward climb well before that. The combination of gradually increasing interest rates and higher prices will erode housing affordability, which we believe will weigh more and more heavily on homebuyer demand in Canada. Therefore, we continue to expect that the next stage of the cycle for the market will be a transition to lower resale levels—closer to the long-term average—and that the rate of price increases will moderate in the year ahead. This transition will gather strength once interest rates show material advance toward reaching more normal levels. Greater-than-expected market strength in British Columbia, Ontario and Alberta in recent months prompted us to revise our forecasts upward. For 2014, we now project home resales to total 479,600 units in Canada (up from 467,200 units previously) and home price increase to 4.4% (from 4.3%). For 2015, while we continue to project home resales to slow down, they are now projected to sum to a higher total of 472,900 units (from 463,100 units). Similarly, we still forecast price increases to moderate next year; however, the pace will be 1.5% rather than 1.1%.
Posted on: Mon, 17 Nov 2014 18:20:18 +0000
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