Canada’s housing market to slow: CMHC
Article from BNN
Canada’s hot housing market is set to cool, with prices and sales expected to fall, according to the federally-backed Canada Mortgage and Housing Corporation.
The agency now expects the average home price to be $368,000 in 2012 -- down from its previous forecast of $372,700. It’s also lowering its average home price forecast for 2013 to $377,300 from $383,600.
The number of existing home sales are also expected to fall, the agency said in its quarterly outlook. It now expects existing home sales to come in at 466,600 units in 2012 and 469,600 units in 2013 -- down from its previous call for 472,300 units and 474,900, respectively.
But the number of new homes hitting the market will maintain strong, with CMHC now expecting the number of housing starts to hit 207,200 units in 2012 and 193,100 units in 2013 -- bumping up its forecast for 2012 from 202,700 units, but just slightly lowering its forecast for 2013 from its previous call for 195,700 units.
“Canada’s housing markets are expected to moderate over the rest of 2012 and into 2013 after showing sustained activity levels, specifically in the multiples segment, over the first half of 2012,” Mathieu Laberge, deputy chief economist for CMHC, said in a statement. “Balanced market conditions in most local housing markets will result in a slowing in house price growth as well,” said Mathieu Laberge, Deputy Chief Economist for CMHC.”
CMHC’s revised outlook for the Canadian housing market comes after a slew of warnings about frothy home prices from top officials such as Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty.
Carney has called on Canada to use the country’s new status as a safe haven for international investors to produce a stronger economy -- not a housing bubble.
“Our challenge as a country is how do we use that capital that comes in? We can use that to grow our economy and invest in new productive assets in industries, or we can build houses -- and our view is that we should do the former,” he said last week in an interview with CTV.
He added that the recent data showed home buyers were beginning to heed his message regarding high home prices.
“An adjustment is beginning in the Canadian housing market and that’s in part because of messages that have gone to individuals and to the institutions. It’s in part because of steps taken by the bank regulator OSFI to encourage banks to increase capital faster than they otherwise would, and it’s in part because of measures that the federal government has taken to tighten mortgage insurance rules,” he said.
But he added that the central bank would take additional steps if required.
In June, Ottawa announced a number of changes to government-backed mortgages.
The new regulations shorten the maximum mortgage amortization period to 25 years from 30 years and lower the amount homeowners can borrow against their house to 80 percent from 85 percent. They also limited taxpayer-backed mortgage insurance to homes that sell for less than $1 million and capped the gross debt service ratio of a mortgage to 39 percent and the maximum total debt service ratio to 44 percent.
Those changes come after what it is a near consensus among Bay Street economists that home prices will fall between 10 to 15 percent in the coming years after years of soaring home values.