Bankrate.ca

 

Title: Housing outlook downgraded

Sub-title: But affordability is improving.

 

To almost no one’s surprise, Canada’s sluggish economy span off lacklustre housing data during the past couple of weeks. This led to one major forecaster to predict further sluggishness as the year progresses.

 

According to the Canadian Real Estate Association, existing homes sales via its multiple listing service fell by 5.2 percent in January, compared to the same period a year earlier. The average selling price of those homes, however, increased by 2.0 percent during the same period to $354,754. Wayne Moen, CREA’s president put a bright spin on the numbers noting that volumes are remaining “steady at the lower levels they reached when mortgage rules were tightened in mid-2012.” This tightening, implemented by the Harper Government, capped the maximum length of insured mortgages at 25 years, in a bid to curb excess borrowing.

 

The Teranet-National Bank Composite House Price Index pointed in the same direction as the CREA data, rising 2.7 percent in January. However the result, the lowest 12-month gain in more than two years, represented a fifth straight monthly decline.

 

The strength of Canada’s housing sector at a time of weakness in major global markets and economies has baffled observers. Despite the lingering effects of a recession and financial crisis Canadians have continued to take on new debt and to bid up prices, through the trend has begun to reverse in regional markets such as the red-hot Vancouver region.

 

However, as Benjamin Tal, an economist at CIBC WorldMarkets notes, lately household credit has been rising at a slower pace. Of particular note are the “clear signs of moderating activity,” in the mortgage market, stemming in part from stagnating housing sales activity.

 

With sales activity waning, not surprisingly leading residential construction indicators also took a hit during the month. According to the Canada Mortgage Housing Corporation, housing starts fell a whopping 18.5 percent to 160,577 units in January, compared to 197,118 in December. The CMHC also released a forecast which projected that housing starts would slip from 214,827 units in 2012 to 190,000 units in 2013.

 

One bright spot is that according to RBC’s recently released affordability index Canadians are finding it easier to come up with the cash to pay for their housing. The bank calculates the typical costs of owning a home, such as mortgage payments, property taxes, utilities and the like, and estimates how much they would be as a percentage of average monthly pre-tax income.

 

During the fourth quarter of 2012, the average cost of owning a detached bungalow was 42.1 percent of average pre-tax family incomes, down 0.2 percentage points. RBC attributes the decline to falling housing prices in several major Canadian regional markets, coupled with small declines in mortgage rates.

 

Low interest rates also contributed. RBC expects the Bank of Canada’s policy rate to remain below 1.0 percent for the rest of this year, and to begin increasing gradually starting in 2014.

 

 

peter@peterdiekmeyer.com

 

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