With summer on the wane, and the Bank of Canada raising its interest rate a quarter point to 1.0 per cent, Canadian mortgage and housing experts have weighed in on new data regarding Canada’s housing market.
Statistics Canada just announced a July drop in new home prices of 0.1 per cent, as opposed to analyst expectations of a 0.1 per cent rise. This marked the first decline in 13 months for new home prices. Meanwhile, building permits for new home construction fell for a fourth straight month as new construction adjusts to falling demand.
These new numbers are a cooling off of an overheated market, rather than the precursor to a U.S.-style housing market collapse, according to Conference Board of Canada analysts. “The housing market has lost its luster,” comments Conference Board municipal studies director, Mario Lefebvre. “However,” he assures, “this will not lead to a free fall for Canada’s housing market. This country will not experience home-price declines to the tune of what we witnessed in the United States over the past few years.”
In commenting on these new numbers, Scotia Capital economist, Derek Holt, notes that the marginal decline in new housing prices and the drop in building permits, “is in line with expectations for softer housing markets.” Nonetheless, the number of residential building permits “remains 31% higher than a year ago,” he adds.
At the Conference Board, Mr. Lefebvre notes that overall housing prices have held up despite a drop in the number of resales of existing housing, as sales “are coming off incredibly high levels in most markets – levels that were simply not sustainable.”
The Financial Post reports that the Conference Board expects further declines in housing starts, but notes that “this will mark a return to more normal levels rather than a collapse in the market, which, in the case of the U.S., was the result of laws that allow mortgage deductibility for tax purposes and the ‘ring-fencing’ of mortgage debt, which prevents lenders from pursuing other assets of a mortgage holder.”
The leveling off of housing starts and price increases, together with mortgage rates that remain low despite Bank of Canada rate increases, is overall mixed but good new for home owners and purchasers who have continued to be deluged with news of the ongoing housing crunch south of the border.
