January 13, 2012
2012 Canadian Housing Outlook
Last year we witnessed a historical low in mortgage rates. Canadian housing prices soared to new heights. What will 2012 hold?
Canadian Housing Predictions
Although most global housing markets struggled, especially in the US and across Europe, Canada’s remained vigorous throughout the year. There were a number of factors that kept the market hot, including persistent low mortgage rates and a strong influx of first-time home buyers.
Residential Home Sales
New stricter mortgage rules introduced in the spring of 2011 helped push on-the-fence first-time home buyers into the market. Therefore, the number of first-time home buyers purchasing homes in 2012 may not be at the level of 2011, especially if home prices continue to climb. Overall, CMHC predicts that total residential resales will increase 1.9% this year, with BC seeing the greatest jump of 6.1%. Ontario, which produces the greatest number of resales, shall remain flat at 195,000 units, where it has been for the past three years.
Residential Home Prices
Canadian home prices, spurred by low mortgage rates and a healthy economy, hit new records in 2011. For 2012, CMHC predicts the average residential resale home price will continue to rise, although this time at an incremental 1.2%. They project the Canadian average to be in the ballpark of $368,000. British Columbia’s home resale prices will decrease, but remain head and shoulder above the other provinces in terms the average listing price. Ontario and Alberta, which sit second and third respectively, will see a small bump up in price.
Housing Start Predictions
*According to CMHC’s forecast of housing starts, which rose rapidly in the middle of 2011 before declining in the later months, we should see a gradual decrease throughout 2012. They expect the number of housing starts to finish 2.2% lower than 2011 levels.
Will there be a housing market crash?
According to the British publication, the Economist, and a report from the Bank of America Merrill Lynch, Canada’s housing market is over-valued and is showing “classic signs” of a housing bubble. However, many Canadian economists are saying something different. Benjamin Tal of CIBC believes there shouldn’t be a call for concern. In the Globe and Mail, Tal says, “Prices are already softening, housing starts aren’t in the sky, MLS is starting to soften, so it suggests the market is already starting to level off, and that’s what we need.”
If anything is poised for a correction, it’s likely to occur in the Vancouver and Toronto condo market. Senior TD economist Jacques Marcil believes Vancouver will see a significant correction this year, indicating that that market likely peaked in 2011. Marcil also believes the growing supply of condos in combination with financial volatility and buyer confidence will likely result in a cooling down period for condo sales in the GTA over the next two years.
The Canadian Real Estate Association (CREA) believes the national housing market is currently balanced, but is edging closer to a seller’s market. As long as Canadian mortgage rates continue to remain flat, and many economists believe they will, the market will continue to remain balanced.