Why we shouldn’t fear a crash in Canada’s three hottest housing markets
Michael Babad – The Globe and Mail
Amid all the hand-wringing over Canada’s housing market comes an interesting finding from BMO Nesbitt Burns: Homebuilding is “largely tracking” demographics in three cities that are the focus of the angst.
Comment: What a shock! If there wasn’t demand, and reason for the demand, there simply wouldn’t be the sales.
“And that’s a good thing,” said senior economist Robert Kavcic.
Mr. Kavcic’s research finds, for example, residential construction starts, while at record levels, has “followed an explosion in population growth” of more than 4% year over year.
“In Toronto, starts are actually at 4-1/2-year lows as population growth has cooled,” he added.
“That might be a bit surprising given all of the cranes, but current construction largely reflects the boom in starts during 2012 and 2013 – activity has since slowed meaningfully.”
What this suggests, Mr. Kavcic said, is that there’s no real overbuilding and, thus, no meltdown on the horizon.
Comment: EXACTLY!
As The Globe and Mail’s David Parkinson reports, housing starts across the country declined in October to an annual pace of 183,600, down from September’s 197,400 and well below what economists had projected.
Comment: Wrong. October housing starts were 195,707 according to the CMHC. Your guy Mr. Parkinson seems to have gotten his numbers wrong.
Work on condos, in particular, slowed. And this is expected to ease further, according to Canada Mortgage and Housing Corp.
The focus in Canada is on Vancouver, Calgary and Toronto, where prices are running hot.
Most recently, the Bank of Canada has said other markets are showing signs of a soft landing.
That’s not to suggest that the central bank is saying those three cities are in trouble, but some economists have taken it as a warning. Having said that, no one is calling for a crash.
Comment: That would be a first.
“Canadian housing is one of those weird areas of economic activity where a downside surprise in the data is generally treated as a positive – indeed, the softer-than-anticipated print is likely a welcome data point for policy makers,” said chief economist David Rosenberg of Gluskin Sheff + Associates.
“It indicates that home building is not losing its moorings as the latest reading is generally consistent with the underlying trend in Canadian household formation,” he added , referring to the housing starts.
“Further, the fact that the weakening in activity in October was specifically centered in the condo segment – the area most associated with overbuilding concerns – is likely another welcome development.”
The trend over the past six months is “well above” what’s required to match population growth, noted economist Brian DePratto of Toronto-Dominion Bank.
“Despite robust trend starts, we continue to expect a gradual slowing of Canadian housing activity towards levels supported by demographics (about 180,000 units) by the end of next year,” he said.
Comment: But housing will continue to chug along and houses and condos will continue to be built. Just because there are fewer doesn’t mean anything bad is going to happen.
“A gradual rise in interest rates, along with the moderate level of overbuilding will help moderate housing activity.”
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Contact Laurin Jeffrey for more information – 416-388-1960
Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.
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