Monday, 23 December 2013

Canada’s housing market is set to cool in 2014 after a better-than-expected performance

A New Report by Canada's Scotiabank suggest that the nation's housing market is set to cool in 2014 after a better-than-expected performance this year.

Canada’s housing market outperformed expectations in 2013, with national home resales largely on par with 2012. Average prices are on track for roughly a 5% annual gain, skewed higher by the strong sales rebound in several high-priced markets, including Vancouver and Calgary. The robustness in housing activity has been broadly based regionally.

New home construction has slowed but remains elevated. Housing starts will likely total around 187,000 this year, down from 215,000 in 2012 but slightly above underlying demographic requirements. The slowdown is primarily in multi-unit construction, as builders respond to weaker new condominium sales and rising inventories. Renovation spending has increased 2½% (inflation-adjusted) year to date, a slight pickup from the average of the prior two years. Looking to 2014, we expect a moderately lower level of resale transactions.

Steady job and income gains combined with strong population growth in the key first-time homebuyer demographic (i.e. aged 25-34) will continue to underpin housing demand. However, 2013 also was marked by the return of buyers that deferred purchases following the prior year’s tightening in mortgage regulations and lending guidelines, as well as those trying to complete purchases ahead of anticipated mortgage rate increases or expiring pre-approvals. Housing affordability, though still well within historical norms, has peaked as the upward drift in mortgage rates compounds record high prices.

Overall market conditions are expected to remain fairly well balanced, with sellers responsive to underlying market conditions. We expect national average home prices will be relatively flat next year. Downside price risk is greater in the more amply supplied high-rise segment than for single-family homes.

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