Hadekel: No bubble yet in housing market
By Peter hadekel, SPECIAL TO THE
GAZETTE
MONTREAL — Years of cheap mortgage rates have helped to stoke demand from a new generation of homebuyers in Canada and fears are still being expressed about whether the housing market might overheat.
The current level of sales is the best in more than four years and closing in on highs reached in 2007 before the last recession.
But it turns out that the hot market is really limited to three cities — Calgary, Toronto and Vancouver. Elsewhere, including Montreal, the market remains relatively well balanced, according to August statistics from the Canadian Real Estate Association.
In Montreal, sales are down 3.7 per cent so far this year, while prices have edged up by 1.4 per cent.
That’s in stark contrast to Canada’s hot spots. Average transaction prices in August on the MLS network jumped 9.8 per cent in Calgary and 7.8 per cent in Toronto versus a year ago. Vancouver was up handily, with a 5 per cent increase.
Prices in those markets are rising faster than family income, further straining affordability, noted Doug Porter, chief economist at BMO Capital Markets.
The continued price gains in the three cities will increase their vulnerability to a shock — whether it comes from the economy, interest rates or something else, he said.
The Bank of Canada has said it no longer assumes there will be a soft landing in the housing market, indicating that the sector has been stronger than expected.
Its concerns may be real but the fact remains that many local markets are flat and even weakening. Indeed, there’s a deepening divide between the biggest cities and smaller markets.
On the sales side, almost half of
urban markets reported declines in August, Porter noted. There were
double-digit drops in places like Halifax, Sudbury and Winnipeg.
It’s a similarly mixed story on the
price side, with a median price increase of 2.2 per cent across the country.
The housing market was hurt by the
long winter and unseasonably harsh spring weather across Canada as the normal
spring activity was deferred to May and June.
Analysts said the boost from
deferred sales is already starting to wind down in many markets where sales
have begun to decline. The good news is that low mortgage rates should continue
to support housing affordability and sales activity for a little while longer.
CREA figures show that the Montreal
market has been on a pretty good run in the period since 2005.
The benchmark price for a two-storey
single family home has climbed from $250,000 to over $375,000 during that
period while the composite index including single family homes, townhouse units
and apartments has risen from around $200,000 to $300,000.
Despite those gains, Montreal’s
house price index continues to lag the national aggregate by almost nine per
cent.
In its forecast for this year and
next, CREA said sales activity in Quebec is expected to decline modestly from
2013 levels by just under one per cent this year.
Quebec recorded 71,202 home sales
last year and is on track for 70,650 this year. Activity in 2015 should bounce
back by 1.3 per cent.
The situation in Quebec was
compounded by the uncertainty surrounding the provincial election in April,
with some buyers in the Montreal area holding off on sale decisions until the
election outcome was known.
Further dampening the Quebec market
is the province’s lacklustre record of job creation this year along with rising
taxes and disappointing economic growth.
Across the country, the boost from
low mortgage rates will begin to dissipate next year as lending rates edge
higher in tandem with an improving economy. Exports, business investment, job
growth and incomes are all expected to improve as the recovery strengthens.
That should help to support house
sales in soft markets. But it’s also true that Canadian household debt is at
record levels and affordability is becoming more of an issue for buyers.
Still, the nationwide picture shows
a balanced ratio of sales to listings and plenty of inventory. We’re not in
bubble territory yet.
