Canada’s housing market was red hot in 2012, so much so that the federal government stepped-in, on more than one occasion, in attempt to cool it off. Fears a housing bubble were forming and being inflated by record low interest rates. The finance minister and the Bank of Canada were concerned that Canadians were piling on too much debt – particularly mortgage debt – setting the stage for a U.S. style housing collapse when interest rates would inevitably start to rise.
A look back - Soft Landing or Crash Landing
Last summer Ottawa introduced several changes to Canada’s mortgage rules. Key among them was the shortening of the maximum amortization period for CMHC insured mortgages to 25 years, down from 30 years. Almost immediately after the rules were implemented, the market started to cool. Now real estate watchers are eagerly waiting to see if it comes in for a soft landing, or hits with a thud.
So far the soft landing is the leading prediction, with only one market, Vancouver, falling out of balance and tipping in favour of buyers.
Continued Slowdown in 2013
The latest figures from the Canadian Real Estate Association (CREA) show sales of existing homes were down 17.4% in December, compared to a year earlier. CREA also shows new listings were down and that the average price for a home in Canada increased by 1.6% in spite of the decline in sales.
CREA projects sales will decline by another 2% in 2013 and the national average home price will increase by just 0.3%.
Economists and most of Canada’s big banks tend agree. They say that without a major event like a spike in interest rates or a sudden jump in unemployment – that is, something that forces people to put their homes up for sale – prices will stabilize and inflation supply-and-demand will guide increases.
Canada Mortgage and Housing Corporation (CMHC) looks at both new and existing home sales. For new homes, CMHC forecasts a drop in housing starts in the area of 20%. Existing homes, or re-sales, are projected to slip about 1% in 2013, with an average price increase, in line with inflation, at about 1.5%.
The Canadian Association of Accredited Mortgage Professionals (CAAMP) sees resale housing taking a somewhat bigger hit. In a report earlier this year CAAMP’s chief economist forecast the average price of a resale home in Canada would drop a little more that 2.7%, while sales would fall by about 6.2%.
Real Results will sprout in the spring
Most analysts agree the market is cooling. They also agree that the federal government’s changes to mortgage rules are the main cause of that cooling. The questions are: how much and how fast? For now most observers are waiting to see what comes from the new real estate season in the spring.