Insight

Canadian housing market crash not on the horizon

Brenda Bouw
Insight

Potential homeowners waiting for the Canadian housing market to crash before buying could be disappointed.

Economists have been lining up to predict that there will be no hard landing, saying sales in worrisome cities are improving and condo builders are smartening up by easing off on construction.

“For all the horror stories out there surrounding Canadian residential real estate, the sector is actually holding in very well,” David Rosenberg, chief economist at Gluskin Sheff + Associates said in a note.

He points to the latest housing starts data, which came in a “very respectable” annual rate of about 200,000 units in June. While that’s 2.5 per cent lower than in May, it beat analysts' expectations of 187,500. Rosenberg noted that starts were up 11.5 per cent in the second quarter compared to the previous one.

A drop in multiple-unit starts in Ontario was also considered encouraging.

“I actually see the fact that multiple unit starts were down 15 per cent in Ontario as constructive news insofar as the data suggest that the condo builders are adjusting their construction schedules into line with new and lower sales realities,” said Rosenberg.

The declines came in Atlantic Canada, Ontario, Quebec and the Prairies. They were offset by a 40-per-cent surge in B.C., which led the economist to make a call that, “the worst in British Columbia may be behind us.”

Rosenberg is one of a handful of economists commenting on Canada’s housing market comeback in recent days.

“Canada’s housing market is proving remarkably resilient notwithstanding the constant barrage of negative headlines,” said Scotiabank economist Adrienne Warren in a recent report.

She said the cooling off was intentional, driven by the government’s tighter mortgage rules put in place to prevent a housing bubble. In its fourth round of changes in recent years, the  government shortened the maximum amortization period for insured mortgages last summer to 25 years, from 30.

Warren estimated those mortgage-rule changes may have "reduced the pool of potential buyers” by as much as 10 per cent.

A Bank of Montreal study released earlier this week says the changes have put off roughly one-in-five new homebuyers.

That said, low interest rates, steady job growth over the last six months, and population growth are helping to support Canada’s housing market – and new buyers are getting interested.

“The recent upward drift in mortgage rates could dampen housing demand in the second half of the year, especially in high- priced markets such as Toronto and Vancouver where affordability is more strained," said Warren. "Yet it could also pull some potential buyers from the sidelines."

Unless of course, they're still waiting for the crash.

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