Canadian Housing Outlook 2007
A report from the Scotiabank Group - Adrienne Warren
Real Estate Trends
The early-year buzz at construction sites and real estate offices across
the country confirms the bunny tale — Canada’s housing market is the
rabbit that just keeps on going, and going. Warmed by mild winter
temperatures, housing starts in January jumped to a 29-month high
while home resales climbed to a new record. The trend in national new
and existing home prices, while off the highs of last spring, is still
averaging about 10% year-over-year.
The booming Western provinces are home to the most active markets.
In the latest twelve months, home price appreciation West of the
Ontario border averaged 18% year-over-year — almost four times the
pace to the East. Even so, virtually all of the major urban markets
tracked by the Canadian Real Estate Association (CREA) are currently
reporting year-over-year price increases.
The buoyancy of Canada’s housing market is particularly impressive in
light of the marked slowdown under way south of the border. U.S.
housing starts and resale volumes have fallen roughly 25% and 10%,
respectively, over the past year. Average prices have flattened since
mid-2006, and are posting significant declines in many of the
previously heated markets in the Western and Southern states.
Canada is unlikely to follow a similar path in 2007. Relative to the
United States, speculative investing has been less active, overbuilding
less prevalent, and high risk lending less widespread. A consistently
strong domestic job market and historically low mortgage rates are
sufficient to maintain at least some forward momentum.
Nevertheless, some softening in overall activity appears inevitable.
Housing affordability has been eroded by the steady run-up in prices
since the start of the decade, and pent-up demand largely absorbed.
At the same time, a growing inventory of unsold new homes, rising
labour and material costs and better balanced resale markets have
trimmed builders’ profit margins. We anticipate a drop of roughly 10%
in home sales and housing starts this year, and national average price
increase in the mid single digits.
At this late stage in the cycle, affordability favours lower-priced
multiple-unit housing such a condominiums over single-detached
homes. “Move up” buyers who have already built up equity in their
homes will likely be more active than first-time purchasers.
Renovation activity should outpace new construction and sales,
sustained by the record number of existing home sales in recent
years.
Global Economic Research
Real Estate Trends
Focus — Canadian Housing Outlook 2007
Scotiabank Group
Real Estate Trends
The early-year buzz at construction sites and real estate offices across
the country confirms the bunny tale — Canada’s housing market is the
rabbit that just keeps on going, and going. Warmed by mild winter
temperatures, housing starts in January jumped to a 29-month high
while home resales climbed to a new record. The trend in national new
and existing home prices, while off the highs of last spring, is still
averaging about 10% year-over-year.
The booming Western provinces are home to the most active markets.
In the latest twelve months, home price appreciation West of the
Ontario border averaged 18% year-over-year — almost four times the
pace to the East. Even so, virtually all of the major urban markets
tracked by the Canadian Real Estate Association (CREA) are currently
reporting year-over-year price increases.
The buoyancy of Canada’s housing market is particularly impressive in
light of the marked slowdown under way south of the border. U.S.
housing starts and resale volumes have fallen roughly 25% and 10%,
respectively, over the past year. Average prices have flattened since
mid-2006, and are posting significant declines in many of the
previously heated markets in the Western and Southern states.
Canada is unlikely to follow a similar path in 2007. Relative to the
United States, speculative investing has been less active, overbuilding
less prevalent, and high risk lending less widespread. A consistently
strong domestic job market and historically low mortgage rates are
sufficient to maintain at least some forward momentum.
Nevertheless, some softening in overall activity appears inevitable.
Housing affordability has been eroded by the steady run-up in prices
since the start of the decade, and pent-up demand largely absorbed.
At the same time, a growing inventory of unsold new homes, rising
labour and material costs and better balanced resale markets have
trimmed builders’ profit margins. We anticipate a drop of roughly 10%
in home sales and housing starts this year, and national average price
increase in the mid single digits.
At this late stage in the cycle, affordability favours lower-priced
multiple-unit housing such a condominiums over single-detached
homes. “Move up” buyers who have already built up equity in their
homes will likely be more active than first-time purchasers.
Renovation activity should outpace new construction and sales,
sustained by the record number of existing home sales in recent
years.
Global Economic Research
Real Estate Trends
Focus — Canadian Housing Outlook 2007
Scotiabank Group
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