Should the U.S. housing market bog down in an anticipated slump, its Canadian counterpart is likely to be in for a softer landing thanks to lower interest rates and a different attitude to home financing, observers say.
"When you take a look at the new home construction numbers, we've been running at the 200,000-plus level for a number of years - this will mark the fifth such year - and it's felt that generally this is in excess of what long-run demographic demand is," said Brent Weimer, Canada Mortgage and Housing Corp. senior economist. "We see housing activity easing to a more long-run sustainable level moving forward."
In recent weeks, analysts have been debating an impending North American housing slowdown and the form it may take. Some say when market drops it will do so with a crash, while others see a more gradual decline. They also differ on how Canada and the U.S. will fare.
In Canada, interest rate jumps, increasing home prices and higher energy costs are nibbling away at affordability but the country has benefited from a strong housing market in the West.
David Rosenberg, North American economist for Merrill Lynch, has pegged the odds of a "hard landing" in the U.S. between 40 per cent and 80 per cent - well above the consensus view of 27 per cent.
"Practically every indicator at our disposal tells us that we are very late in the cycle and the historical record also strongly suggests that the next wave after the Fed has inverted the entire yield curve is either a hard landing or a very bumpy soft landing," he said.
Peter Andersen, consulting economist to the Canadian Home Builders' Association, thinks that there are fundamental differences between Canadian and American housing markets.
"In the U.S., a housing downturn is underway and it is more of a hard landing than an orderly slowdown.
"In contrast, national housing demand remains relatively stable at a high level in Canada. Personal spending power is stronger in Canada as a result of stronger income gains and more robust job creation. Canada's housing cycle is younger. It only began in 2002."
Andersen's bullish view of the Canadian housing market is shared by a number of analysts who all point to the interest rate situation as being a key positive factor.
On the topic of rates, Andersen refers to the "onset of interest rate stability," which he sees lasting through the spring selling season of 2007.
"Both the U.S. Federal Reserve Bank and the Bank of Canada will probably keep interest rates on hold until sometime after mid-year 2007," he states.
In housing economist Will Dunning's August housing market digest (another insider publication), he has revised his forecast for the GTA new housing markets upward, particularly for condominium sales.
On the issue of interest rates, Dunning suggests that, beyond rate stability, we could soon see a drop of as much as a quarter point in mortgage rates.
That's what the insiders are saying. What about the public agencies?
As it happens, Canada Mortgage and Housing Corp. just released its third-quarter housing market outlook with the headline, "Housing starts will remain strong."
CMHC says that national housing starts (the beginning of construction of a home of any type) this year will be the second highest since 1988 and will edge lower in 2007 but remain above the 200,000 level for a sixth consecutive year.
On interest rates, the CMHC states that they are still low by historical norms.
"Moderate inflation and a strong Canadian dollar will keep increases in Canadian interest and mortgage rates modest over the remainder of this year and in 2007.
"In 2007, interest rates are expected to stay within 25 basis points (presumably this could mean lower, as Dunning suggests) of their 2006 level," CMHC says.
From my own perspective, having recently toured several U.S. markets on housing study tours organized by our association, I have been astounded by the high housing prices there.
Sizing up any American home based on its lot and the floor area, our builders inevitably guessed way low on the asking price. We were left shaking our heads as to how entry-level buyers, even move-up buyers, could afford to live there.
Obviously, rapid price escalation has caught up to the builders and buyers in the U.S. Thankfully, that does not appear to be the case here, in Canada.
More info about Toronto housing market you can find here - http://www.torontogreathomes.com
thestar.com
Thanks for your update,please tell me what states in USA was hit the hardest.
ReplyDeleteCanada housing market is another bubble that is going to burst at the middle of 2008
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