ERIC BEAUCHESNE
Canwest News Service
OTTAWA
The housing market is cooling — the only question is by how much, according to government and private-sector forecasts Thursday.
Sales of existing homes, which have fallen for four straight months now, will plunge 15 per cent this year from last
year’s record level, and the average increase in prices will ease to five per cent, Scotia bank forecast Thursday.
After many false calls, there is now convincing evidence Canada’s housingmarket has come off the boil, it said. In fact,
once adjusted for inflation, the average resale price inCanada declined for the first time in seven years in the first quarter,
Scotiabank said.
“Price gains should slowfurther in 2009 with there turn of a balanced market for the first time in a decade,” said
Scotia bank economist Adrienne Warren.
“Meanwhile, housing starts are projected to gradually moderate, returning toward underlying annual house hold formation levels of around 180,000
by the end of the decade, from the current 225,000-unit range.”
Scotiabank noted that so far, the cooling in overall activity has been most pronounced in many of Canada’s hottest urban housing markets in recent years,
including Calgary and Edmonton, which have become buyers’ markets as soaring prices have weakened demand and fuelled new listings.
Scotiabank’s projected plunge in sales this year was nearly double the 8.5-percent drop expected by the federal housing agency, which also released
its forecast for sales, prices and housing construction starts for this year and next.
However, neither Canada Mortgage and Housing Corp. nor Scotiabank expect a major housing market meltdown as followed previous housing booms in
the 1980s and 1970s, or has occurred over the past year in the United States.
“Despite a slow down of…sales, demand remains strong by historical standards,” CMHC said, projecting that home prices would continue to out pace
inflation this year and next, rising 5.1 percent this year to a national average of $323,000, and 3.3per cent next year to $333,500.
“At the end of the day, we predict a soft landing for the Canadian housing market, with somewhat lower sales and
construction, and a period of relatively flat inflation-adjusted home prices.”
Scotiabank’s Warren said there are a variety of reasons for confidence in the continued health of the housingmarket. Unlike in the U.S.,
home prices in Canada are not substantially over valued, the real estate market is not overbuilt, households are not over-leveraged and overall
mortgage quality is still sound, she said
Still, the 10-per-cent average annual increase inhome prices over the past half decade was unsustainable, and a returntomore historical norms
is a welcome development, Warren said.
“At the end of the day, we predict a soft landing for the Canadian housingmarket, with some what lower sales and construction, and a period of
relatively flat inflation-adjusted homeprices,” Warren said. CMHC agrees.
“Strong economic fundamentals such as continuing high employment levels, rising incomes and lowmortgage rates will provide a solid foundation for
healthy housingmarkets this year,”said CMHC economist BobDugan.
However, Scotiabank cautioned that a major risk to the outlook would be a deeper and more protracted downturn in the U.S. economy, with more serious
repercussions for Canada’s economy.
CMHC,meanwhile, said higher mortgage carrying costswill be acatalyst for the decrease inresidential construction to 214,650 units this year from 228,343
last year and then to199,900 in 2009
“Most of the pent-up demand that built upduring the 1990s has nowbeen fulfilled and residential construction activity will gradually move in line with Canadian
demographic fundamentals,” Dugan said.
