Are you planning to buy or sell homes? Looking for some advice? Listen to Canadian Banks before you make up your mind. Here are selected portions and main points from Banks’ reports on housing (real estate) trends and forecast in Canada.
CIBC
CIBC Economist, Benjamin Tal recently released an interesting report examining the possibility of a housing bubble in Canada. Some quotes from the report.
“So is it a bubble? Glancing at popular metrics such as the price-to-income ratio or the price-to-rent ratio, it is tempting to conclude that the housing market is already in clear bubble territory and a huge crash is inevitable. Tempting, but probably wrong. When it comes to the Canadian real estate market at this stage of the cycle, any statement based on average numbers can be hugely misleading. The truth is buried in the details—and there the picture is still not pretty, but much less alarming ”
“Take Vancouver out of the picture and this rate slows to 5.6%. Exclude both Vancouver and Toronto and the price increase is only 3.7% ”
“Zooming in on the high profile Vancouver market, we see that the gap between average and median prices is approaching an all-time high—indicating a highly skewed market. In fact, removing properties that are above the $1 million mark reveals a much more moderate price appreciation and reduces the average sale price by $220,000 to just over $590,000. So what makes Vancouver abnormal is the high end of its property market.
And in this context many, including Governor Carney, point the finger at foreign—mainly Asian wealth—as the main driver here. Data on the extent of that role is quite limited. Our analysis of data obtained from Landcor Data Corporation suggests that only 10% of the close to 4,500 transactions involving foreign money over the past five years were above the $1 million mark, with an average purchasing price of just under $600,000. In fact, foreign money accounted for only 2.6% of all sales (mostly condominiums) during the same period—hardly a dominant force. However, that could be a serious underestimate, as it is based on where property tax assessments are mailed, and would exclude offshore buying on behalf of children or other local proxies. Moreover, foreign buying is probably much more dominant in specific parts of the city, such as the west side.”
RBC
Canada’s housing market is “in transition” and resale and pricing will cool over the next year in a significant slowing from the boom years in the previous decade.
Resales in Canada would rise just 0.9 percent in 2011 to 451,200 homes, and remain unchanged in 2012.
Flat resales trends would contrast starkly with average annual increases of 6.6 percent in the seven years that preceded the 2008 market downturn and recession.
We’re more likely to see at least over the next couple of years, very flat activity and fairly subdued growth
Higher mortgage rates in April and May also pushed some home buyers to the sidelines, while expectations of higher rates to come have also cooled the market.
TD
Canada’s housing market is poised for a “moderate correction” over the next two years, with prices and resales due to slow because of subdued household income growth and rising interest rates.
Fewer first-time home buyers are expected to enter the market. Stiffer rules for insured mortgages were implemented earlier this year. Still, the key drivers of housing demand will remain supportive over the rest of the year, but will become less favorable over 2012-13.
The booming market, which had raised fears about growing household debt levels, is now widely expected to cool gradually.
Resale activity is expected to decline 15.2 percent, while prices are estimated to fall 10.2 percent, over the next two years. Vancouver and Toronto, the country’s priciest markets, are forecast to have larger than average declines.
No market is likely to experience a housing boom over the medium term.
Scotia Bank
Canadian real estate, though it has retreated from its highs of 2005 through 2007, is still supported by steady job creation and still attractive borrowing costs. But a tightening of mortgage rules, coupled by higher interest rates expected to come, are keeping first time buyers out of the market now.
It is anticipated relatively flat sales volumes and average prices through the latter half of the year.
BMO
Canada’s housing market appears well balanced, with sales running in-line with the average of the past decade, and certainly no abundance of new listings. Stricter mortgage rules and
declining affordability appear to be taking at least some momentum out of prices, a trend that could continue if the Bank of Canada resumes its tightening campaign in the fall.
Regionally, the vast majority of cities saw sales increase in June, with two notable exceptions: Pricey Vancouver (-1.7%) and heated Toronto (-0.4%). Both of these cities also saw new listings rise about 2.5%, which, at least in Toronto, took some momentum out of prices—average Toronto prices fell a seasonally-adjusted 1.1% in June, but are still up nearly 10% y/y as the local market appears to be one of the tightest in Canada. In Vancouver, prices (+22.9% y/y) continue to be skewed by sales at the very high end of the market, though CREA notes that activity in areas like West Vancouver and Richmond has eased since February, somewhat reducing the impact on average prices.
Conclusion: Maximum fall in prices is predicted by TD only.TD expects prices to fall 10.2 percent, over the next two years. Vancouver and Toronto, the country’s priciest markets, are forecast to have larger than average declines. Time will tell which prediction is true. In the meanwhile exercise caution; buy or sell if you need it. Don’t speculate.
Perrii Muthuraman is a realtor with HomeLife/GTA Realty Inc.,Brokerage. He helps clients to take informed decisions. If you are planning to sell or buy, you can contact him at 416 473 6100.
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