One year later
The Canadian government’s latest moves to prevent a housing bubble may have knocked up to 10 per cent of potential homebuyers out of the market, Bank of Nova Scotia says in a new report that, like others, suggests a soft landing for the industry.
The Canadian government’s latest moves to prevent a housing bubble may have knocked up to 10 per cent of potential homebuyers out of the market, Bank of Nova Scotia says in a new report that, like others, suggests a soft landing for the industry.
Among
the new rules that went into effect a year ago tomorrow, by Finance Minister
Jim Flaherty and the Office of Superintendent of Financial Institutions, was a
cut to 25 years in the maximum amortization for insured mortgages.
That
marked the fourth round of tighter rules and sparked a plunge in home sales
over the past year, though prices have largely held up across the country.
Over the
past few days, several local real estate boards have reported June sales that
suggest the market has stabilized.
In Vancouver,
for example, sales in the Vancouver area climbed by almost 12 per cent from a
year earlier for the best showing in two years. And in Toronto, the other city
that has sparked fears of a meltdown, sales slipped by less than 1 per cent.
Having
said that, of course, the year-earlier period left a lot to be desired.
Still,
many analysts believe Mr. Flaherty got just what he wanted, averting a crash.
“Canada’s
housing market is proving remarkably resilient notwithstanding the barrage of
negative headlines,” said economist Adrienne Warren of Bank of Nova Scotia.
“Based
on a review of local real estate boards representing about 50 per cent of
national activity, home sales in June were in line with year-ago levels,” she
said in a new report.
“On a
month-to-month seasonally adjusted basis, we estimate national sales rose for a
fourth consecutive month. Market conditions remain well balanced: Average
prices are up 4 per cent year over year but have levelled out in recent months.
National
numbers are expected to be reported next week.
Most
cities, Ms. Warren said, are posting “modest firming in sales and moderate
single-digit year-over-year price increases,” though there are differences
among the regions.
“Sales
in Vancouver are stabilizing at a level significantly below long-term trends,
while activity in many other markets, including Toronto, is largely in line
with the 10-year average,” she added.
“Calgary
is outperforming the national trend, though the impact of the recent floods
will impact activity in the coming months.”
So how
much of a difference did last year’s restrictions make?
According
to a survey released today by BMO Nesbitt Burns, they stabilized the market but
didn’t kill it.
Some 66
per cent of potential first-time buyers polled by Pollara said Mr. Flaherty’s
move didn’t alter their plans for when they buy, while 19 per cent said they’ll
now wait longer. Fourteen per cent said they would buy earlier.
Ms.
Warren said the latest restrictions may have “reduced the pool of potential
buyers” by up to 10 per cent, but that “historically low interest rates, steady
job gains and population growth continue to underpin housing demand.”
The next
several months make forecasting a bit more difficult, however.
While
“stable pricing” is attractive, mortgage rates have start to inch up, which
could hurt the market in the second of the year, she said, particularly in the
more costly cities of Toronto and Vancouver.”
“Meanwhile,
the outlook for continued low short-term interest rates will provide a cushion
to any potential further rise in long-term borrowing costs.”
Statistics
Canada also reported today that the number of permits taken out by builders in
May climbed 4.5 per cent from April.
That was
driven by the residential construction industry in Ontario and the
non-residential sector in Quebec.
Permits
for residential construction alone rose 4.2 per cent, far slower than April's
21.6 per cent but still the third increase in a row.
Building
permits, traditionally volatile, climbed 4.4 per cent for single-family homes
and 4 per cent for multi-unit construction, such as apartments and
condominiums.
Canada's
condo market, in particular, has been a source of worry.
"Numerous
apartments and apartments-condominium projects in Ontario, Alberta and Nova
Scotia contributed to sustaining the advance from April," Statistics
Canada said.
Chief
economist Avery Shenfeld noted the "firm uptrend" in residential
construction, though he believes that will cool.
"We
still expect homebuilding to decelerate, but the evidence seems to be pushing
some of that off into a 2014 story," Mr. Shenfeld said.
"Note
that current permits and starts could still be responding, in the case of
multiples, to pre-sales that took place months ago, so there could be a
substantial lag before decelerating demand flows through to building."
The Globe and Mail
Published Monday, Jul. 08 2013, 7:21 AM EDT
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