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Since the housing boom peaked in 2004, the market has cooled very gradually. In fact, 2006 saw some records and near-records set. For example, the value of building permits over just the first 11 months hit a new high.

Prices for existing homes made their largest gains since 1989. Total sales of existing homes at 481,400 were off just 0.3% from last year’s record high. Housing starts ticked upwards very slightly from last year, marking the second-highest level since 1988.

Continued cooling

Forecasters expect the market to continue cooling slowly. For example, the Canada Mortgage and Housing Corp. (CMHC) predicts starts this year to reach more than 210,000, dipping to 198,500, then 191,900 and 187,900 over the next three years. Similarly, sales of existing homes for this year are forecast at 460,100 units, down by just 4.4% from last year.

Housing Prices

For 2006, the national average resale home price was $294,190, up by 10.6% over the past year. But the average hides local variations. In Alberta, for example, the price of resale houses was up by 38%. In new housing as well, while the national new housing price index was 11.4% higher than the year before, in Alberta, it was 46% higher. Driven mainly by price, carrying costs in Alberta jumped by 48% in one year. Peter Norman, Vice President of Clayton Research, expects a slowing in the rate of increase for 2007, especially in the West.

Renovation Market

On the other hand, the renovation market shows no signs of cooling. Norman predicts that it will continue to grow by 7 to 8% over the next few years, continuing to outpace the economy in general as it has done for the past decade.

Mortgage and Interest Rates

CMHC predicts mortgage rates will stay near current levels until 2010, rising a little by the end of that period. Norman also sees mortgage and interest rates remaining “low and steady.” In fact, he says, in the normal business cycle, mortgage rates are less important to the housing market than consumers’ economic expectations. When job growth is robust, so is consumer confidence. However, then central bankers begin to worry about inflation and may respond with higher interest rates. Conversely, when job growth is slow, bankers may lower rates. “The system is auto-correcting,” he says. “Employment growth and interest rates are in balance.” The Conference Board of Canada reports that consumer confidence rose in the last quarter of 2006, especially in the 35-to-55 age group, the pool of repeat home-buyers. The dollar is down somewhat, but as Norman points out, the US economy is still performing well, so demand for Canadian exports will remain strong. With the usual proviso about unexpected shocks to the economy, Norman says, “I see no major threats to the economy.”

Sources: Statistics Canada, Clayton Research, Canada Mortgage and Housing Corporation, Canadian Real Estate Association, TD Bank Financial Group, Canadian Imperial Bank of Commerce, Scotiabank Financial Group.

This entry was posted on Monday, January 22nd, 2007 at 9:45 pm and is filed under News, Real Estate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.