Courtesy of MCAP
Eventually, the summer doldrums will arrive but as we have now hit mid-July, there is still no shortage of housing market data and analysis to look at if you have not yet booked off on summer holiday. Last Tuesday marked the fateful one year anniversary of the last round of changes to insured mortgages which rocked the Canadian real estate and mortgage markets. And for good reason too: market activity took a definite step backward in the late stages of the second quarter of 2012 and activity has remained below long term averages for about a year. Price gains were soft in most of the country as well. The most recent data, however, indicates an emerging stability and most market activity and home price forecasts are now positive over the medium term.
New Housing Price Index for May
Statistics Canada reported its New Housing Price Index for the month of May last week. The index tracks changes to contracted prices as agreed to between builders and home buyers on homes with similar characteristics. In May, the index rose 0.1% after posting a 0.2% increase in April. The national year-over-year increase in the index in May came in at 1.8% which is a respectable increase , although it was the smallest annual gain in the index since March, 2010.
It is no surprise that Calgary lead the country with a 0.9% increase in the index in May. It was followed by St. Catharines-Niagara, Sudbury and Thunder Bay which each posted 0.6% increases. The index for Winnipeg rose 0.5% in May which helped that market record the highest annual gain at 5.8%. The index for the country’s largest market, Toronto-Oshawa, gained 2.6% from a year ago.
Last week, CMHC also reported on housing starts for the month of June. Starts were trending at an annualized rate of 184,514 in June (defined as a six month moving average of the monthly seasonally adjusted annual rate)-up slightly from May’s trending rate. The “stand alone” seasonally adjusted rate of starts in June was 199,586, down from 204,616 in May. Gains in starts in British Columbia offset relative weakness in other parts of the country. CMHC sees a general trend of stability in these figures
as the trend has settled in at a rate which is close to both historical averages and estimated rates of household formation.
Royal LePage House Price Survey and Market Survey Forecast
Royal LePage released its home price and market forecast last week for the second quarter. Optimism abounds in their analysis “as Canadian housing emerges from the current cycle”. The survey says that two-storey homes and bungalows enjoyed annual price gains of 2.7% in Q2 as they reached average prices of $419,614 and $386,547 respectively. Standard condominiums gained 1.2% year –over -year to an average price of $248,750.
Royal LePage forecasts that Canadian home prices will increase by an average of 3% during 2013. CEO Phil Soper described the market over the past year as having experienced a “normal cyclical correction” and took some pleasure in noting that “those hoping their predictions of a bursting bubble and cataclysmic drops in home values will come true are out of luck again”. Even the prospect of rising mortgage rates is described as having a silver lining as Soper positions initial rate increases as reflecting a strengthening economy, increased employment and improving consumer sentiment-all of which are supportive of the housing industry. The “dampening effect” of higher borrowing rates, he says, is already “priced in” to both consumer attitudes and current lending policies. Although the short term prospects for the country’s condominium markets are uncertain as certain key markets absorb a “supply spike”, the medium and long term prospects are good as demographics, consumer preferences and increased density in urban planning objectives all point to growing demand for condominiums.
Teranet - National Bank Composite House Price Index
The index reading for June closed out the week on a bit of a down note as it increased by its smallest increment since October, 2009. The index was created in June, 2005 at which time it was set at 100. It has now reached 157 which means that re-sale home prices have appreciated by 57% over the seven year life of the index.
BMO released survey data last week which shows that only 19% of first time home-buyers surveyed report that the rules changes from a year ago caused them to postpone their purchases. A somewhat surprising 14% of first time buyers surveyed said that the changes actually prompted them to act sooner in purchasing while 66% report that the changes had no impact on the timing of their purchases. In Ontario, the percentage of those surveyed who say that they will still buy as planned despite the insured mortgage rule changes is 76% while in B.C., the percentage who will delay their purchase because of the rule changes is 33%.
Those surveyed report that the average price of homes which they plan to purchase is $300,000 and that the average down payment on their purchase will be about $48,000 or 16% of the average purchase price. As Rob McLister of Canadian Mortgage Trends has pointed out, the average down payment figure from the BMO survey seems significantly higher than CAAMP’s data indicate. The survey results are based on 0nline interviews with 2,000 Canadians which were conducted in late February and early March of this year.
Back to the one year anniversary of the rule changes: July 9th marked one year since the
changes to insured mortgage rules took effect. Scotia Global Economics wrote in a recent report that those changes may have reduced the ranks of qualified buyers by up to 10%. But still, most Canadian real estate markets are stable and balanced with modest and seemingly sustainable price increases. As longer term interest rates rise, some buyers will be sidelined again but others may jump in hoping to avoid having to borrow at even higher rates later.
The naysayers (Garth Turner and David Madani prominent among them) are stead fast
in their belief that Canadian home values will experience a significant correction in the
medium term . Only time will tell who is making the correct projection but it is difficult to argue that, on the one year anniversary of a government policy change which some feared could cause a correction, the Canadian housing market has indeed made a soft land.