Even as Canada's rate of economic growth has accelerated, the housing market appears set for a soft landing. The Canadian Real Estate Association reports existing-home sales in October were 8.3% higher than in the same month a year earlier, with prices up 8.5% in the period. Housing inventory is equal to six months of sales at current rates, a signal that the market is relatively balanced. Moody's Analytics data show prices of new homes are up 1.5% since last October and have been slowly decelerating over the last two years.
Tighter mortgage financing rules, implemented last year to discourage property speculation, have slowed construction of new homes. The overall value of building permits has risen 9.2% over the past year, but this was driven by a 9.5% increase in the number of permits for multifamily homes. The number of permits for single-family homes has fallen 5.6%. Although Canadians have accumulated record levels of debt, low interest rates have enabled them to simultaneously reduce debt servicing costs. After reaching a peak in 2008, the mortgage debt service indicator has fallen to its lowest level on record as the total amount of mortgage interest paid has changed little in nominal terms while disposable incomes have risen.
David Rosenblum is an Economist at Moody's Analytics.
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