Housing prices in the Lower Mainland are predicted to rise a modest three per cent in 2015, while Canada’s highest prices, in Vancouver, will be sustained by demand from Mainland Chinese buyers.

That’s the view from RE/MAX’s 2015 national housing outlook, in a relatively optimistic report that suggests Greater Vancouver real estate is well supported by a variety of supply and demand factors.

RE/MAX’s report diverges strongly from a new Bank of Canada report that warns parts of Canada’s housing market are overvalued by 30 per cent.

RE/MAX’s report says average residential prices in Greater Vancouver increased from $781,517 in 2013 to $838,400, and are projected to rise to $863,600 in 2015.
Price gains in Vancouver will continue to be driven by hot demand and limited supply for detached homes in west-side neighbourhoods, RE/MAX predicts, while buyers who hoped to break into Vancouver’s market on the east side and lost multiple bid battles may drop out of the market in 2015.

Frustrated buyers won’t limit the market, though, because “the pipeline of demand for the region will continue to grow,” according to RE/MAX.

“Offshore buyer demand from Mainland China continued throughout the year,” the report says. “Demand for westside homes will continue to be driven by offshore buyers who can afford to pay the two million dollar-plus price tag.”

Cory Raven, managing broker at RE/MAX Select Realty in Vancouver, say agents report that “the mindset” of Mainland Chinese buyers focuses on “parking wealth” in Vancouver, rather than seeking price appreciation. That means a significant group of buyers in Vancouver is content to buy higher and higher, agents believe.

“Assuming that tap stays open, the higher end of the market will (continue to see aggressive gains),” Raven says.

There has been speculation that the flood of cash pouring from China into Vancouver real estate will be limited with the ending this year of a federal immigrant investor program. The South China Morning Post has reported a replacement program will be much smaller in scope, and will subject applicants to rigorous audits. But Raven says the perception among realtors is “the tap” will stay open.

“Many realtors have told me that the way business is done (in China) is very different, and the wealthy can always find a way to get their money out.”

Meanwhile, in a new report, the Bank of Canada studied worrying debt loads carried by homeowners across Canada, and calculated that some markets are at risk of correction, with homes overvalued by up to 30 per cent.

But Helmut Pastrick, chief economist of Central 1 credit union, says he believes the Bank of Canada’s data and study method is “constrained” and does not account for unique supply and demand factors in Vancouver’s housing market.

Pastrick says limited land supply in Vancouver is the main factor justifying high housing prices, and demand from Chinese buyers impacts Vancouver’s west side, and West Vancouver. But even if the flow of investment from offshore were to end, according to Pastrick, there would not be a significant drop in Greater Vancouver home prices.

Pastrick says he sees RE/MAX’s prediction of a three-per-cent rise in home prices across the region as reasonable.

“This market is not booming, but it is pretty solid,” he said. “It certainly is not a bubble.”

Pastrick says while U.S. officials appear ready to raise historically low interest rates within half a year, the Bank of Canada probably will not raise rates until late 2015 or longer.

While the Bank of Canada warns that high home prices and heavily indebted households raise risks of a housing correction, Pastrick believes the only real risk is an economic recession.

A drastic fall in oil prices that caught almost all economists by surprise will impact Alberta and other areas of Canada, but actually could support provincial economies such as B.C. that are net importers of oil, Pastrick believes. At this point, he sees no recession risk for B.C. on the horizon.

Source: Sam Cooper, The Province

A low inventory of single-family detached homes for sale in Metro Vancouver has buyers engaging in multiple bidding wars or camping out to get a shot at the few homes when they come on the market.

The demand is so high that many buyers are paying more than the original asking price and, in some cases, aren’t bothering with inspections or subjects on the property before signing on the dotted line, said Cory Raven, managing partner at ReMax Select Realty.

This is because they’re afraid someone else will beat them to the punch if they wait or take their time, he said.

“It’s very typical for someone to enter the market once, twice or three times expecting to buy a house and going into the bidding war and losing.” Raven said.

“It really has changed the dynamic of the good old days when you see a place, put in an offer and wait a couple of weeks … people are going into a 40-year-old house with no inspections.”

Such tactics are not surprising in the most expensive region in Canada for residential real estate in 2014. The average residential sale price for a single-family home in Metro Vancouver this year was about $838,400, up from $781,517 a year earlier, according to the ReMax 2015 housing market outlook.

And the situation isn’t expected to improve much for buyers looking for deals in 2015, with home prices forecast to rise by at least three per cent across Metro Vancouver — similar to what was experienced this year. Healthy gains are also anticipated in Kelowna, which is expected to see a seven-per-cent increase, and Victoria, slated for a four-per-cent rise in house prices.

The market is so hot that sales of single-family houses are still being listed across Metro Vancouver into mid-December, when they would have usually stopped by now before resuming in the new year, said Brian Lamb, of Royal LePage Realty Coquitlam.

“It’s bizarre,” Lamb said. “It can only go up in the first quarter of 2015. I think we’re going to have an incredible first half.”

The ReMax report suggests young families and older homeowners wishing to downsize are expected to drive demand, while interest from Mainland China also continues to influence the Greater Vancouver market.

“The supply side has definitely been affected,” Raven said. “A lot of people who are housing rich don’t know what to do with the equity except to keep it.”

David Lamb, of Sutton Group West Coast Realty, agreed many older people are hanging on to their homes, which is having an impact on inventory. He recently had eight offers on a home in Windsor Park on the North Shore, while a property east of Seymour raked in $40,000 more than the asking price, which was round the mid-$800,000s.

“Earlier this year we had a guy who lost out four times and finally found a house,” David Lamb said. “It’s emotional, it’s tough. When there’s a lot of competition, there’s always somebody who will pay more.”

It’s not just older homes that are facing the crunch. Lamb said foreign investors are willing to pay more for a home in Metro Vancouver, particularly in the Tri-Cities and Burnaby, where they tend to knock down existing homes to build their own.

He cited the Rivers Run development as an example of foreign investment interests: in the first two phases 24 homes sold within hours, while the remaining 14 homes were snagged within an hour by buyers who camped overnight to get them.

ReMax expects there will be upward pressure on detached house prices in Vancouver’s west side due to high demand and low inventory, but said the condo and townhouse markets will likely sustain a more balanced market.

However, even those markets aren’t immune from buyers’ frenzy. ReMax realtor Mary Cleaver said a four-bedroom townhouse listed on Vancouver’s Carolina Street had seven offers and was sold within the week, with no subjects and at $50,000 more than the asking price. “It is unique for that to happen,” she said.

Condos in East Vancouver were in high demand near the end of 2014, according to the report, which suggested well-priced homes often sold within one to two weeks, whereas the average market time for condos was 45 days. “The condo market has been healthy but nowhere near the bidding wars and housing (price) gains,” Raven said.

But both Lamb and Raven said some people are starting to get buyers’ fatigue and bowing out of the bidding wars. Two Sundays ago, Lamb said, 28 people had come through an open house, but several parties decided not to bother in the bidding. “We had people who won’t get tied up in this flurry,” he said.

However, ReMax noted as those potential buyers move to the sidelines and wait for the market to stabilize, the demand in the region will continue to grow.

Source: Kelly Sinoski, Vancouver Sun

After 18 months on the job, Bank of Canada governor Stephen Poloz has yet to wield the primary tool at his disposal: the key interest rate.

When Poloz took the bank’s reins in June 2013, he inherited an overnight rate set nearly three years earlier by his predecessor Mark Carney. That rate has yet to budge from one per cent, idling for one of the longest stretches in Bank of Canada history.

Bill Robson, the president of the C.D. Howe Institute think-tank, believes it will happen sometime in 2015 thanks to an increasingly positive economic outlook, including an improving U.S. economy and a pickup in Canadian exports.

Once the bank’s overnight rate starts to creep up, Canadian businesses will see their borrowing rates rise as will consumers who take out car loans and mortgages.

Ian Lee, a professor at the Sprott School of Business at Ottawa’s Carleton University, predicts businesses will feel the sting of higher rates right away, but he expects the effect on households to be much more muted.

Many consumers, he added, will avoid a sudden jolt because of fixed-rate loans and mortgages.

On top of that, Lee said the rate would likely inch up a quarter-percentage point at a time, making the coming increases easier to manage than the towering Canadian levels of the early 1980s.

Lee said the rate hikes in the early 80s killed the real-estate market, but didn’t create a housing meltdown and the number of foreclosures barely increased.

On the flip side, higher rates would help pension funds reap a bigger return on their investments, Lee added.

McGill University economics professor Christopher Ragan said, fundamentally, rising rates are a good thing.

“It is signalling a stronger economy,” he said.

The Bank of Canada said last week the country had showed signs of a “broadening recovery” and the output gap appeared to be smaller than it had projected just six weeks earlier. The output gap represents the divide between where the economy stands at a given time and where it would be when performing at its full potential.

However, the bank’s statement offset the positives by pointing to potential threats: weakening oil prices that drive down inflation and the significant risks of high household debt accumulated during years of low borrowing rates.

The basic logic behind low rates is to encourage people to gather debt when the economy is weak, said Ragan, who has worked at the Bank of Canada.

Robson belongs to the camp that expects Canada’s strengthening economy to force Poloz to move the rate in the middle of 2015, while Lee predicts the rapidly shrinking output gap will spur an increase as early as this spring.

The Organization for Economic Co-operation and Development recently predicted the Bank of Canada would start pushing the rate up in late May due to advancing inflation, a key driver of interest rates.

At the other end of the spectrum, economists like David Madani of Capital Economics expect Poloz to stand pat for a while, even after the U.S. Federal Reserve starts hiking its own key rate.

He predicts the forces pushing Canadian inflation upwards to remain fairly subdued in 2015, which he says will keep the central bank in a “holding pattern” for the whole year.

Robson said it would even be OK if Poloz raised rates and then edged them back down, if necessary.

“Everybody knows that the central bank has trouble reading the economy just as everyone else does,” he said.

Source: Andy Blatchford, The Canadian Press

One measure which suggests that housing demand is relatively strong heading into 2015 is the number-of-months’ supply of homes for sale in Canada, which declined from 5.9 to 5.8 in October, its lowest level since April of 2012.

Also, year-over-year house prices in the Teranet/National Bank House Price Index (+5.4% Oct) and the Canadian Real Estate Assn House Price Index (+5.5% Oct) have trended gradually higher since the beginning of 2014. However, the rates of increase in both indexes early in the final quarter of 2014 are nowhere near the levels they reached in 2006 of 14.1%, and 13.0% respectively and early in 2010 (12.7% and 12.5%).

Turning to the supply of dwellings, housing starts in Canada have remained quite stable. Indeed, over the past two years, starts have averaged 190,000 units seasonally adjusted at annual rates (SAAR) which is at or very close to the estimated rate of household formation. Further, despite the steady uptrend in existing home sales and the above noted gradual increase in house prices, housing starts trended lower since mid year.

Another indicator of housing market health is the percentage of mortgages that are more than ninety days in arrears. In line with the very gradual decline in the number of regular Employment Insurance beneficiaries and the unemployment rate since the beginning of the year, the percentage of mortgages more than ninety days in arrears has trended down from 0.32% in January to 0.29% in August, its lowest value since September of 2007.

Further according to the most recent Annual State of the Residential Mortgage Market in Canada published by the Canadian Assn of Accredited Mortgage Professionals, approximately 77% of the 1.35 million homeowners who renewed their mortgates in 2014 saw a 0.8% drop in their mortgage rate. This decline in mortage rates over the past year suggests that the majority of mortgage holders renewing over the next twelve months will also see a reduction in rates.

Looking forward, the fundamental drivers of housing demand in Canada appear more positive now than they have been for several quarters. First, over the past two months, Canada has added 117,000 jobs, the vast majority of which (96,000) are full time. Second, according to a recent study by CIBC, immigration has made a much stronger contribution to growth of Canada’s prime 25-44 age group than was previously estimated. Indeed, over the past five years, growth of this age group, the major driver of employment and household formation, has accelerated from -0.8% y/y in 2009 to +1.1% in 2014.

This rate is well above the average growth of the OECD and 75% faster than in the United States. Third, in addition to giving a boost to consumer spending, lower energy prices should, by increasing discretionary income, make home ownership more affordable. Finally, interest rates are likely to remain low well into the middle of the year and while they may edge higher in the second half of 2015, they are unlikely to chill housing demand significantly. Given these positive fundamentals, we expect housing starts to total in the range of 185,000 to 195,000 in 2015 compared to an estimated 190,000 in 2014.

Source: John Clinkard, Daily Commercial News

Even though real estate prices have been rising faster than inflation and are going through the roof in some parts of Canada, home ownership actually became more affordable in the third quarter, according to a quarterly survey by RBC Economics.

The bank credits rising household incomes, low interest rates and lower utility costs in some markets for making it a bit easier to own a home.

During the July-to-September period, RBC’s housing affordability measure at the national level fell 0.2 percentage points to 47.8 per cent for two-storey homes. It also fell for condos – down 0.3 percentage points to 27.1 per cent.

“A trend that jumped out in the latest data was a further broad improvement in affordability of condos where a strong majority of markets across Canada saw the measure for the segment fall,” said RBC chief economist Craig Wright in a release.

“Condos no doubt continue to be the more affordable ownership option in every market.”

The affordability measure for detached bungalows was the outlier; it rose a tenth of a percentage point to 42.6 per cent.

An affordability reading of 50 means that ownership costs, which include mortgage costs, property taxes and utility costs, would require 50 per cent of a household’s monthly gross income.

The latest data from the Canadian Real Estate Association shows that the national average home resale price rose 7.1 per cent on a year-over-year basis in October.

The MLS home price index, which many observers consider a better indicator of home price trends, rose 5.5 per cent over the same period.

Some markets, notably Vancouver, Toronto and Calgary, have seen real estate prices rise much faster than the national average. The bank notes that it is the robust activity in these three markets that has been largely responsible for eight monthly increases in resales in the last nine months.

Affordability remains a big stretch in Vancouver and Toronto. The cost of a benchmark detached bungalow in Vancouver, for instance, requires 83.6 per cent of a typical household’s pretax income to carry. In Toronto, it takes 56.3 per cent.

RBC says a drop in fixed mortgage rates earlier this year helped to drive the current strength in the housing market. But it doesn’t expect that situation to last.

“A combination of gradually increasing interest rates and higher prices will likely reverse the improvement in housing affordability that took place in the past year and weigh more and more heavily on homebuyer demand in Canada,” said Wright.

“We expect the next stage of the housing cycle to be a transition toward lower resales and slower price increases.”

RBC said it expects the Bank of Canada to raise its key overnight lending rates in the middle of next year, but says longer-term rates will rise “well before that.”

Source: CBC News

Rumours of the great Canadian housing bubble are greatly exaggerated, says Greg Klump, chief economist for the Canadian Real Estate Association (CREA).

While Canadian housing prices have increased an average 6.9 per cent so far this year (the highest in a decade), the more accurate housing price index (HPI) has increased 5.2 per cent for the first 10 months of 2014, which is the best in three years, according to CREA.

Moreover, if you take Toronto, Vancouver and to a lesser extent Calgary out of the picture, the average price increase would be several percentage points lower, while other market measures, like sales-to-listings ratios and month’s supply of homes for sale, are close to their 10-year averages.

“The problem with housing market bubble stories is that they fail to recognize fundamental housing market dynamics,” Klump told the Association of Regina Realtors in Regina Thursday. “For a big price correction to take place, we need a big and lasting run up in supply … or a big and lasting drop in demand … or some combination of the two.”

Since neither a recession (which would result in massive layoffs) nor a big spike in interest rates (which would drive up debt-servicing costs) is on the horizon, Klump said: “I just don’t see that happening.”

Still even reputable agencies like Canada Mortgage and Housing Corp have expressed concern about Canadian housing prices, which have continued to outstrip U.S. home prices in 2013, even when inflation and exchange rates are taken into account. “This Canadian ‘premium’ could be cause for concern because it may indicate that house prices in Canada are overvalued,” CMHC said in its annual Canadian Housing Observer released Thursday.

Following his presentation, Klump said CMHC’s concern is that “average house price growth is being stretched” by increasing average prices in two of Canada’s most active markets, Vancouver and Toronto.

“What’s going on in Vancouver and Toronto reflects a couple of things,” Klump said. “No. 1, you’ve got some very high-priced homes making up a greater proportion of the sales, pulling up the average price in those markets and for Canada as well.”

For example, Toronto saw a nine per cent year-overyear increase in average home prices in October, versus the 5.5 per cent increase in HPI nationally.

In addition, those price increases are largely in the central Toronto area, where “densification” initiatives (i.e., condo construction) have driven up the price of single-detached homes.

“It’s a function of the market because you don’t have enough supply to catch up with the demand,” Klump said.

“In Vancouver, you’re capped by geography. There’s no place to go. So there’s a lot of expensive homes being sold and an ongoing shortage of affordable homes.”

Source: Bruce Johnstone, The StarPhoenix

That’s the news from the Canadian Real Estate Association (CREA). The data reflect sales that are stronger than expected, with recent months showing higher performance than experts foresaw. Nevertheless, sales activity is expected to reach a peak in the third quarter as the impact of a deferred spring fades and price increases push down sales by reducing affordability and pricing potential purchasers out of the market.

The increase will see 2014 slightly outperform the 10-year average, while remaining broadly in line with it. In other words, this is a slight improvement on an already healthy business as usual, not a deviation from normality. There have been periods of monthly volatility since the depths of the 2008-9 recession, but annual activity has remained fairly stable. This stability contrasts favourably with the sharp growth seen just prior to the 2008 crash: Canada is undergoing a prolonged period of stable growth, not the run-up to a bubble.

Broken down by region, British Columbia is by far the biggest winner, expected to post an 11.9% year-on-year increase in activity, with Alberta running in second place and expected to show a 7.7% rise. Demand in both provinces is running at multi-year highs, as the desirability of residence in Vancouver or Edmonton combats the downward push of rising prices on demand.

Other regions are not posting such success stories, though. In Saskatchewan, Manitoba, Ontario, and New Brunswick, activity is expected to remain in line with 2013 levels and sales will increase in the range between 1% and 2% – lower in Ontario and New Brunswick than in Manitoba and Saskatchewan.

And some provinces are not sharing in the sales boom at all. In Nova Scotia and in Newfoundland and Labrador, sales are down by 3.9% and 5.2% respectively, providing a rural mirror to the urban boom that pushed up the national statistics.

The national average price has largely followed predictions since the spring, and is currently forecast to rise by 5.9% to $405,000 by the end of 2014, again with rises concentrated in British Columbia and Alberta. Ontario is expected to experience a similar rise, while Saskatchewan, Manitoba, Newfoundland and Labrador are expected to see rises of only about 1%. Quebec isn’t expected to manage more than half that, while prices in New Brunswick are forecast to flatline, and in Nova Scotia CREA expects them to fall by as much as 2%.

Longer range forecasts see prices rising more slowly next year, up by 2% in Alberta and Newfoundland and by more modest amounts elsewhere, in line with the trend of both price and sales growth being concentrated on Canada’s prosperous West Coast.

Although the rises are expected to be transitory, sales have yet to show signs of cooling. Activity has strengthened over the summer, rather than relapsing as expected following a spring boom thought to be attributable to Canada’s unusually bad winter. The large urban markets that originally drove the spring rebound continue to dominate, while rural markets have continued their slide.

Source: Les Calvert of www.property-abroad.com

The national average home price rose in October but the impact of Canada’s two largest markets is continuing to influence Canada-wide numbers, according to the Canadian Real Estate Association.

Across the countries prices were up 7.1% from a year ago to an average of $419,699. Once Toronto and Vancouver are removed, the annual gain slips to 5.4% and the average sale price for October drops to $330,596.

“Low interest rates continued to support sales in some of Canada’s more active and expensive urban housing markets and factored into the monthly increase for national sales,” said Beth Crosbie., president of CREA, in a statement. “Even so, sales did not increase in many local markets in Canada, which shows that national and local housing market trends can be very different.”

For the sixth straight month sales rose and last month proved to be the strongest for October since 2009.

“While the strength of national sales activity is far from being a Canada-wide phenomenon, it extends beyond Vancouver, Calgary and Toronto,” said Gregory Klump, chief economist with CREA. “Sales in a number of B.C. markets have started to recover from weaker demand over the past couple of years. They have also been improving across much of Alberta, where interprovincial migration and international immigration are reaching new heights.”

Actual October sales were up 7% from a year and sales were up 70% of all local markets, led by Greater Vancouver and the Fraser Valley, Victoria, Calgary, and Greater Toronto. Those five markets combined for 40% of the national sales activity.

For the first 10 months of the year, sales were now up 5.2% from a year ago and 2.5% above the 10-year average for the same period.

Source: Garry Marr, Financial Post

Housing prices in the Vancouver region are headed for a record high this year, and signs point to a continuing upward trend in Canada’s most expensive property market, fuelled by steady population growth and economic stability.

The price for detached houses, condos and townhouses sold in Greater Vancouver is on track to average $811,000 this year, up 5.6 per cent from $767,765 in 2013, according to Canada Mortgage and Housing Corp.

CMHC predicts that average prices for resale properties will rise 1.2 per cent to $821,000 in 2015 and climb another 1.7 per cent to $835,000 in 2016.

Sales on the Multiple Listing Service will jump 13.2 per cent to 32,800 this year, before slipping to 32,250 units in 2015 and 31,600 in 2016, the agency said in its market outlook for Greater Vancouver. The forecasts are above the 15-year average of nearly 31,300 sales annually.

“Looking ahead, existing home sales are projected to ride the 2014 momentum into much of 2015 before anticipated higher interest rates take some steam away towards the latter part of 2015,” CMHC said, adding that population growth in Greater Vancouver is largely driven by migration from overseas.

Net migration is forecast to grow 11 per cent to 26,500 arrivals in the Vancouver area this year, followed by a 7.5-per-cent gain to another 28,500 people in 2015.

“A strengthening economy should help full-time employment gain more traction for all age groups,” CMHC said. “Employment and population changes are two of the key drivers behind housing demand.”

The average price for a detached house in the Vancouver region is forecast by CMHC to climb 4.8 per cent to $1.51-million next year. A May story in the New Yorker magazine on Vancouver’s pricey houses asserted that the B.C. city has become part of a global market in real estate, even though it “doesn’t have the cultural cachet of Paris or Milan.”

An October report titled Emerging Trends in Real Estate echoed the magazine’s assessment. The study by PricewaterhouseCoopers and the Urban Land Institute noted that while Vancouver has a lower global profile than those two major European cities, real estate on Canada’s West Coast is seen as a hedge against political risk during turbulent times in other parts of the world. Vancouver “does offer comfort and stability – and a place for the world’s super-rich to park sizable funds in local real estate as a hedge against risk,” said the report.

As for new home construction, housing starts in the Vancouver region are on pace to rise 1.1 per cent to 18,900 units this year, slip to 18,700 next year and then increase to 19,250 in 2016, according to the CMHC forecast. The overall trend is stable, said Robyn Adamache, the agency’s senior market analyst for Vancouver.

CMHC’s outlook covers Vancouver suburbs such as Richmond and Burnaby. The agency’s other research includes tracking Fraser Valley communities, from sprawling Surrey to Abbotsford.

Average prices for existing Fraser Valley properties are expected to increase 4 per cent this year to $510,000, then rise 0.5 per cent to $512,500 next year and gain another 2.2 per cent to $524,000 in 2016.

CMHC is calling for 14,500 resale houses changing hands this year in the Fraser Valley, up 12.4 per cent from 2013. That will be followed by 13,500 sales in 2015 and 13,750 in 2016, the agency said.

The forecasts would be thrown off if interest rates were to soar, resulting in a housing slump nationally, but industry experts aren’t expecting sharp rate increases.

Source: Brent Jang, Globe and Mail

Canada’s housing market has cooled off slightly from this summer, but regional disparities make one-size-fits-all approaches to controlling it difficult.

The Canadian Real Estate Association (CREA) reported Oct. 15 that September’s national home sales fell 1.4 percent from the August level — the first monthly decline since January.

In addition, house prices only rose 0.3 percent in September after a rise of 0.8 percent in August, according to the Teranet–National Bank House Price Index (HPI) measure released the same day. On a year-over-year basis, prices rose 5.4 percent.

CREA notes that year-over-year price growth has been in the range of about 5.0 to 5.5 percent since the start of the year, based on the Multiple Listing Service HPI measure.

Canada’s housing market would be characterized very differently if it were not for Vancouver, Calgary, and Toronto. By both Teranet–National Bank HPI and MLS HPI measures, these three cities topped the national level notably.

Based on the Teranet–National Bank HPI, Calgary has had the strongest price growth at 9.5 percent, followed by Toronto at 7.4 percent, and Vancouver at 6.5 percent. Without these three cities, the other eight cities in the index saw an average price increase of about 1.8 percent.

Housing starts climbed slightly from August to September, but remain below the year’s high point of 203K in July. This suggests, according to BMO’s Oct. 8 housing starts analysis report, that “overall building activity in Canada remains within the range required to satisfy demographic demand.”

Only Alberta’s September housing starts were significantly over the province’s 12-month average and level from a year ago, according to the analysis from BMO. “Alberta simply needs the homes, with the population expanding close to 3 percent year-over-year and rent growth now running at a five-year high,” BMO stated in its report.

Housing starts are weak in most parts of the country, notably Quebec and Atlantic Canada. Even Toronto condo starts hit a 4.5-year low in the third quarter.

Canadian finance minister Joe Oliver gave a press conference on Oct. 14, after his meeting with private sector economists in Toronto. He reiterated that he doesn’t believe there is a housing bubble, a view that echoes that of the Canada Mortgage and Housing Corp. (CMHC), the Bank of Canada, the Organisation for Economic Co-operation and Development (OECD), and Scotiabank CEO Brian Porter.

Oliver touched on the “dual market” in Canadian real estate in that Toronto, Calgary, and Vancouver are seeing price increases while the rest of the country isn’t.

What do these three cities have going for them that others in Canada do not? Young populations, immigration growth, and good employment prospects are a few reasons. Vancouver also benefits more than other regions from Chinese foreign investment.

Regarding concerns on an overheating housing market, Oliver listed measures that his predecessor, the late Jim Flaherty, took to cool the housing market. “[We’ve] taken the froth, we believe, out of the market,” Oliver said. “[We] don’t see the need for dramatic changes.”

The effects of lower mortgage rates through much of 2014 has spurred home sales and price increases and likely played a role in household debt-to-disposable income ticking up in the second quarter, a more worrisome sign. The Bank of Canada did note at its last rate-setting meeting on Sept. 3 that “activity in the housing market has been stronger than anticipated.” It has since moderated slightly, but regional disparities are more pronounced.

And as the global economy takes a turn for the worse with disinflationary concerns and weakness most notably emanating out of Europe and China, bond yields are reaching their lowest levels in over a year.

Canada’s five-year bond yield is at its lowest level since May 2013. This creates the potential for lower fixed-rate mortgages and potentially another wave of home price increases and sales as houses are seen as more affordable. Canadian borrowers could get more in debt as well.

In the last couple of weeks, three of Canada’s big banks have lowered significantly their five-year fixed mortgage rates. The average five-year fixed mortgage rate from the six big Canadian banks was 3.53 percent on Oct. 15, down from 4.08 percent a week earlier.

Macroeconomic policy and monetary policy are very blunt tools as they are applied across the whole economy. What might be appropriate in Vancouver would clearly not be in Quebec City, for example.

Source: Rahul Vaidyanath, Epoch Times