Is Canada’s Red Hot Housing Market Taking a Breather?
After a red-hot year, is Canada’s housing market taking a breather as we enter 2014?
According to Canadalend.com, 2013 was a pretty strong year for the Canadian housing market. In an economic environment where the Bank of Canada kept its key policy rate—which impacts variable mortgage rates—at one percent, home sales and prices have soared.
In December, home sales in Toronto increased almost 14% year-over-year, while home prices climbed 8.9%. In Calgary, home sales increased eight percent, while housing prices were up 8.6%. Out on the west coast, December home sales for Vancouver were up an eye-watering 71% from a year ago, while the benchmark for properties increased roughly two percent to $603,400.
On the heels of a strong year in housing, the Canadian Real Estate Association (CREA) predicts that the national price for a home in 2014 will rise 2.5% in 2014 to $391,100. They have also forecast that national sales activity will climb 3.7% to 475,000 units. The strong increase reflects the weak start to 2013, which, the CREA said, it did not expect a repeat of in 2014.
The CREA also predicts Alberta to post the biggest rise in average price in 2014 with 3.4%, with gains in British Columbia (2.5%), Saskatchewan (2.2%), Manitoba (2.1%), and Newfoundland and Labrador (2.2%) running just ahead of overall consumer price inflation. The average price increase for a home in Ontario will run slightly below it at 1.9%.
As for sales activity, the CREA predicts it to increase 3.7% year-over-year throughout all of Canada, with the largest gains being made in British Columbia (8.4%), followed by Saskatchewan (5.3%), Alberta (3.5%), and Ontario (three percent).
Despite the robust outlook, recent housing indicators suggest 2014 is not starting out the way the CREA had predicted. Three separate reports show the Canadian housing market is cooling, with building permits and housing starts slipping and prices levelling off in November and December of 2013.
November building permits slipped 6.7%—more than double the three percent fall that analysts were expecting. December housing starts came in at 189,672, which is significantly lower than the 196,000 forecast. And according to Statistics Canada, the nation’s New Housing Price Index was flat in November after posting a modest 0.1% rise in October.
With national home prices levelling off, Canadalend.com expects the Canadian real estate market to cool further in 2014, as weak economic growth and stubbornly high unemployment put home prices out of reach for many Canadians. Housing prices will also cool as builders slow down to let demand catch up with the supply of new projects.
The combination of a cooling market and continued low interest rates could make the property ladder that much more attainable for many well-positioned first-time home buyers. The Bank of Canada has said it won’t raise its key policy rate until the economy is on more stable footing; with the economy showing increased instability, this might not happen until 2015 at the earliest.
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“CREA Updates Resale Housing Forecast,” The Canadian Real Estate Association web site, December 16, 2013; http://www.crea.ca/stats/quarterly-forecasts.
Hopkins, A., “Canada housing starts, permits drop, prices flat as market cools,” Reuters web site, January 9, 2014; www.reuters.com/article/2014/01/09/canada-economy-idUSL2N0KJ12N20140109.
“New Housing Price Index, November 2013,” Statistics Canada web site, January 9, 2014; www.statcan.gc.ca/daily-quotidien/140109/dq140109c-eng.htm.