The Canadian housing market - particularly in Vancouver and Toronto - is due for a correction, TD Economics says.
Photograph by: Thinkstock, Postmedia News
OTTAWA — A much anticipated correction in the Canadian housing market is not in the cards, according to a report by the Canada Mortgage and Housing Corp.
In its third-quarter market outlook, the national housing agency forecasts the market will ease slightly but "remain steady" this year and next.
"Housing starts have been strong in the last few months, but are forecast to moderate closer in line with demographic fundamentals," Mathieu Laberge, deputy chief economist for CMHC, said Wednesday. "Despite recent financial uncertainty, factors such as employment, immigration and mortgage rates remain supportive of the Canadian housing sector."
In fact, CMHC revised up its outlook for 2011 housing starts to 183,200 units from 179,500 in its second quarter report. It forecasts the number will climb in 2012 to 183,900 units.
In 2010, there were 189,930 housing starts.
CMHC also forecasts existing home sales will total 446,700 units in 2011 — approximately the same level as in 2010, although slightly lower than its second quarter forecast of 452,100. It forecasts sales will rise "modestly" in 2012 to 458,000 units.
The outlook runs contrary to a report in July from TD Economics, which projected that Canada's housing market was poised to correct over the next two calendar years, with resale activity falling 15.2 per cent and average prices dropping 10.2 per cent.
"A combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first-time home buyers are expected to be the chief culprits behind the slowdown," said the report, prepared by deputy chief economist Derek Burleton and economist Sonya Gulati.
Earlier this summer, BMO Capital Markets warned that the Canadian market could suffer a price setback if there is a rapid rise in interest rates due to higher inflation, an increase in unemployment because of a weak U.S. economy or a slowing in foreign investment.
CMHC, however, projects that despite a slowing in the second half, average resale prices will deliver an overall increase in 2011, and continue to rise, albeit at a more modest pace, in 2012.