No crash in store for Canadian housing market: Scotiabank

A slowdown in Canada’s housing market will continue through 2013 and years of stagnation may follow, but no crash is likely because demographic trends will support demand in the medium term, a report by Scotiabank said on Monday.  The report by Canada’s third-largest bank said that home sales have already dropped more than 10% from spring 2012, with prices leveling off but not yet falling except in particularly hard-hit markets.

Housing, which slowed but did not crash as a result of the global financial crisis, helped sustain Canada’s economy through much of 2010 to 2012 but is now starting to slide just as the U.S. housing sector has begun a clear recovery.

Scotiabank said the housing slowdown will trim a quarter of a percentage point from Canada’s economic growth in 2013 and 2014, while the U.S. housing recovery is adding half a percentage point to annual growth rates there.

While Canadian home sales may continue to slump, the report said, prices will likely remain above year-ago levels until at least the second half of 2013, and will not drop as dramatically as they did in the United States.

Bank of Canada keeps rate unchanged

As expected, the Bank of Canada left its benchmark overnight rate unchanged at 1.00%.  The Bank described the global economic outlook as “broadly consistent” with its projection. The recent sequestration cuts in the U.S. were cited as a factor making the fiscal drag on the U.S. more front-loaded, but still in-line with its two year outlook for the U.S. economy.

On the domestic front, the Bank recognized the continued slack in the Canadian economy with the weak Q4 GDP reading and current soft inflation environment, but “expects growth in Canada to pick up through 2013, supported by modest growth in household spending combined with a recovery in exports and solid business investment.”  The outlook for inflation was subdued, with core and CPI inflation expected to remain at their current low levels in the “near term, before rising gradually to reach 2 per cent over the projection horizon”  The Bank also recognized the healthier evolution of household credit and expects further moderation in this regard.

Key Implications

Given the current economic environment – both globally and domestically – today’s interest rate decision came in as expected.  The Bank highlighted the soft numbers that were recorded in recent months. Indeed, Q4 real GDP (+0.6% annualized) released last week point to the economy currently running in neutral to finish 2012. The weak hand-off from December (-0.2%, m/m) also means that 2013 will not have a rolling start either. These readings suggest that there exists downside risk to the Bank’s 2.3% real GDP forecast in 2013Q1.

Persistent weakness in inflation – January’s reading marked the tenth consecutive month that inflation has come in below the Bank’s 2.0% target – also points to the Bank remaining on the sidelines until 2014 when it comes to interest rate moves.

Have we hit the bottom of the slump?

Canada’s cooling housing market may have some people re-thinking their desire to buy. Despite dropping sales, prices are holding up. Nationally, Canada’s housing market closed-out 2012 with a 17% decline in sales in December, but a 1.6% increase in the average price.

More than half a year has passed since the last round of mortgage rule changes by the federal government and trends are starting to emerge. Year-end reports from the real estate industry and CMHC project a slower market for 2013.

But bank economists are now saying the slump has pretty much hit bottom and the effects of the changes have been priced in.

And there has been one significant change since all of the end-of-the-year prognostication: the Bank of Canada has reversed its stance on interest rates. After months of warning that rates will be going up the Bank now says economic conditions mean increases are not imminent.

This change has the potential to halt the slide in the housing market and will likely re-establish some stability, at least for the rest of 2013.

Bank of Canada delays rate hike

OTTAWA - The Bank of Canada held its overnight interest rate at 1% on Wednesday but dramatically revised its projections to say any hike would be further away than previously thought, because of excess capacity, soft inflation and stabilizing household debt.

“While some modest withdrawal of monetary policy stimulus will likely be required over time, consistent with achieving the 2%inflation target, the more muted inflation outlook and the beginnings of a more constructive evolution of imbalances in the household sector suggest that the timing of any such withdrawal is less imminent than previously anticipated,” said the central bank, led by Mark Carney.

Expect mortgage rates as well as lines of credit to remain low for the coming year at least.

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Rate Increase in 2013?

Speculation about the Bank of Canada’s interest rate policy is creeping back into the news again. There are suggestions the benchmark rate will be on its way up by the end of this year and the Central Bank isn’t doing anything to quell those notions.

The latest global outlook from one of Canada’s “Big-5” banks points to on-going improvements in the U.S. economy as the driving force behind an increase of interest rates by the end of 2013. The outlook forecasts an increase as much as a half-a-percent (50 basis-points) provided the Canadian economy maintains the growth it showed at the end of 2012.

The Bank of Canada’s Senior Deputy Governor Tiff Macklem reaffirmed the central bank’s desire to see rates increase during an appearance less than a week ago. Macklem, who’s pegged as the best bet to replace exiting BoC governor Mark Carney, said the Central Bank’s low interest rate strategy “is reaching its limits and rising levels of household indebtedness have created vulnerability.”

The Bank of Canada’s next interest rate announcement is set for January 23rd. It is expected to hold the rate at 1%.

No housing crash for Canada

Canada’s cooling housing market has made a soft landing with steady sales and pricing through the fall, providing further evidence of an expected gradual decrease rather than a U.S.-style housing market crash, according to a report released Tuesday.

“Canada’s national housing market is shifting toward a more sustainable path, though significant differences in regional conditions continue,” Adrienne Warren, Scotiabank’s senior economist, said in the report entitled Global Real Estate Trends.

Click Here to read the complete article via the Vancouver Sun

Is There Really a Housing Bubble?

Sagging home sales and flat ­prices have prompted speculation that the “housing bubble” might be about to burst — a prospect that immediately catches the attention of British Columbians.
But there is no housing bubble, according to Tsur Somerville, director of the University of B.C.’s Centre for Urban Economics in the Sauder School of Business.

“You can’t burst a bubble that wasn’t there,” said Somerville. “But you can have prices above where they should be and it not be a ­bubble.

For prices to go down ­significantly, contended Somerville, “You need people who have to sell, either because the economy has collapsed and they don’t have any income or developers have built a whole bunch of units that are unsold and the bank is screaming at them or foreclosing or something like that.”  None of those conditions appears imminent.

Somerville said it would take “some negative shock,” such as an ­economic meltdown or mortgage interest rates jumping from four per cent to nine or 10 per cent, to trigger lower prices.

“I don’t have a crystal ball but if I had to guess I would be more likely to guess this kind of lower sales/flat prices is more likely to continue.”

The B.C. Real Estate Association is more optimistic. Chief economist Cameron Muir is predicting increased sales in 2013 because of continuing low interest rates, population growth and more full-time jobs.  Employment growth in the ­Greater Vancouver area in the first ­seven months of the year, according to Muir, has been 3.5 to 4 per cent ­higher than the same period last year.

“I would expect to see sales pick up before the end of the year, at least on a seasonally adjusted basis,” Muir said.

Click here to read the complete article form the Vancouver Province.