Canada’s housing market to spring forward in the early part of 2007 before falling back
Solid early-year housing starts, home resales and price appreciation
Western provinces most active markets, but real estate activity should remain healthy across most major urban centres
Ongoing erosion in housing affordability points to a softening in real estate activity later in 2007
TORONTO, March 7 /Canada News Wire/ – Healthy real estate activity is expected across Canada despite some loss of momentum later this year, according to experts who presented today at Scotiabank’s Canadian Real Estate Outlook and Trends Forum 2007.
Canada’s real estate market to spring forward in the early part of 2007 before falling back as the year progresses, predict experts during Scotiabank’s Canadian Real Estate Outlook and Trends Forum.
During the forum, which was held in Toronto, keynote speaker Phil Soper, President and CEO, Royal LePage Real Estate Services observed that, “Fuelled by solid economic conditions including moderate interest rates, high employment and strong consumer confidence, Canada’s real estate market was quick out of the gate this year.
Early indications point to a stronger than forecast spring market, the most important trading period on the annual real estate calendar. We expect that this resilient real estate market will continue throughout 2007.”
Also speaking was Adrienne Warren, Senior Economist, Scotiabank. “Canada’s housing market is the rabbit that keeps on going, and going,” remarked Ms. Warren, while presenting the findings of her latest Real Estate Trends Report.
“Warmed by mild winter temperatures, housing starts in January jumped to a two-and-a-half year high while home resales climbed to a new record.” Ms. Warren added that the trend in national new and existing home prices, while off the highs of last spring, is still averaging about 10% year-over-year.
Western provinces lead in growth
In the report, Ms. Warren noted that Canada’s booming Western provinces were the hottest real estate markets in the past year. In the last twelve months, home price appreciation west of the Ontario border averaged 18% year-over-year – four times the pace in the east.
The report added that significant regional performance disparities will persist, with the Western provinces expected to again lead in average house price increases and construction in 2007, supported by tighter market conditions, record employment rates and more favourable demographic trends.
In fact, last year Western Canada’s active resource industries and tight labour markets attracted more than 70,000 Canadians to Alberta and British Columbia from other parts of the country.
Despite the western-biased growth, Ms. Warren reported that virtually all of Canada’s major urban markets are currently reporting year-over-year real estate price increases. A number of cities are enjoying strong population and employment growth which support strong housing price gains.
For example, Toronto is the overwhelming destination for immigrants to Canada and natural resource abundant centres such as St. John’s, Saguenay and Sudbury are also witnessing above average job growth.
Canadian housing expected to remain buoyant despite U.S downturn
“The buoyancy of Canada’s real estate market is particularly impressive in light of the marked slowdown under way south of the border,” observed Ms. Warren, who noted that U.S. housing starts and resale volumes have fallen roughly 25% and 10%, respectively, over the past year.
In the Real Estate Trends Report it is noted that Canada is unlikely to follow a similar path to its southern neighbour in 2007. Relative to the United States, speculative investing has been less active, overbuilding less prevalent, and high risk lending less widespread. A consistently strong domestic job market and historically low mortgage rates in Canada are sufficient to maintain at least some forward momentum.
Housing affordability impacted by rising prices
In her report, Ms. Warren noted that some softening in overall Canadian real estate activity appears inevitable, since housing affordability has been eroded by the steady run-up in prices since the start of the decade and pent-up buyer demand has been largely absorbed. The report predicted a drop of roughly 10% in home sales and housing starts this year and national price increases in the mid single digits.
At this late stage in the cycle, affordability favours lower-priced multiple-unit housing, such as condos, over single-detached homes. In addition “move up” buyers who have already built up equity in their homes will likely be more active than first-time purchasers. Renovation activity should outpace new construction and sales, sustained by the record number of existing home sales in recent years.
Steady borrowing costs now, lower later
Scotiabank’s Deputy Chief Economist Aron Gampel indicated that “The Canadian economy would record moderate growth this year in response to the slowdown in the United States, ongoing competitive issues, including a strong Loonie, and prior interest rate adjustments.”
Mr. Gampel also predicted that economic prospects would remain strongest in the resource-rich regions, and in the fast-growing service and construction sectors that are supportive of the nationwide boom in infrastructure spending.
According to Mr.Gampel, “In this environment, borrowing costs will likely remain steady for the time being, though the slowing momentum in growth points to lower interest rates in the second half of the year.”
Scotia Economics provides clients with in-depth research into the factors shaping the outlook for Canada and the global economy, including macroeconomic developments, currency and capital market trends, commodity and industry performance, as well as monetary, fiscal and public policy issues.
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