A Scotia Economics report says Canada’s housing market is cooling, but at a slower pace than most other markets in the developed world.
In the bank’s latest real estate outlook, it said that Canada is showing resilience that few other countries have been able to maintain. “While Canada’s hot housing market also has begun to cool, it remains a notable outperformer.”
Of the nine major developed markets tracked with available Q2 data, only Canada, France and Switzerland showed housing price increases year-over-year. In Canada, existing home prices were 5 per cent higher year-over-year in Q2 (on par with Q1 appreciation), while prices appeared to level out in July and August, the report showed.
“Heightened economic uncertainty combined with recent signs of a loss of momentum in Canada’s job market could keep some potential buyers on the sidelines for the time being,” said Adrienne Warren, Scotia Economics senior economist and real estate specialist. “On balance, we anticipate a modest slowdown in the volume of sales transactions heading into year end, alongside relatively flat prices.”
“I just think the other factor we’ve seen in the slowing and softening of prices just reflects the fact that the housing market itself has become fairly balanced between the number of buyers and sellers out there,” she said. “If anything, I think the cooling off in prices is positive for longer-term affordability for buyers.”
While interest rates are expected to remain low for some time, the Canadian economy is showing signs of losing some momentum, a factor that would affect home purchases. Warren said it will be important to keep an eye on the job market. “Typically, we find that there’s not really a high correlation with interest rates and direction of home prices as much as there is with labour market conditions.”
“From a demographic perspective, the people who had wanted to come into the market and take advantage of the low interest rates, a lot of that has been satisfied,” she added.
The report also said that the weakness of the U.S. housing market is a big factor contributing to the continued weak U.S. economy. That spills over to Canada’s forestry sector, which supplies building materials for their housing market. In Q2, average inflation adjusted home prices fell 6 per cent in the U.S. (5 per cent decline in Q1). This brings the cumulative decline in U.S. real home prices since late 2005 to about 30 per cent. Scotiabank expects a protracted period of weakness in the U.S. housing market, as it could take several years to work through the sizeable oversupply of housing, including current ‘off-the-market’ units.