Debunking the Canadian housing market worries

Home sales and prices are down, but the sector still looks stable

Andrew Willis 1 April, 2019 | 2:00PM
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Andrew Willis: In February, the Canadian housing market saw a 9% fall in sales from January, bringing volumes down to their lowest levels since 2012. Home prices are also down when compared to the same time last year, in fact, it’s the first annual decline in prices since 2009 and the only decline outside of a recession. The trends have renewed worries around a wobbly housing market and strengthened calls for tighter mortgage rules for prospective buyers. But in the right context, you may find that many of these fears are unfounded.

First of all, even with a steep monthly drop in sales levels, year-over-year declines are only at 4.4%, a similar figure to January. And if you take that month-over-month 9.1% figure and remove the heavier declines out West, specifically in Alberta and British Columbia, you'll find the combined sales for the rest of the country were actually up by 2.8% year-over-year. Secondly, on home prices, experts say the First-Time Home Buyer Incentive mentioned in the 2019 federal budget is likely to push home prices higher. And the increase in the Home Buyers' Plan to $35,000 may also push prices upwards.

Thirdly, there is a concern around rising interest rates widely feared to be the key catalyst that will cause a domino effect of market decline rates do not appear to be rising anytime soon. Our neighbors in the south certainly appear to have rates on hold for the year at least. Finally from a supply and demand perspective although new listings declined more than 3%. The Canadian Real Estate Association says that 70% of the cities in the country have balanced markets and they forecast that for the whole of 2019 resales may only fall 1.6% below 2018.

Now this first national decline in almost decade does come at an interesting time. And there is one key metric that Canadian real estate investors should really be focusing on: debt. Canadians are loaded with some of the highest levels of debt in history, and how regulators attempt to rein this in will be a key catalyst. It could be a rate increase, it could be a rule change, and meanwhile, politicians continue pushing to loosen lending standards and the busiest time for home buying is right around the corner. Making the coming few months very much worth watching.

For Morningstar, I'm Andrew Willis.

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About Author

Andrew Willis

Andrew Willis  is Senior Editor at Morningstar Canada. He previously produced content for Fidelity Investments and finance industry events for Euromoney Institutional Investor and has written in the past for Thomson Reuters and CNN. Follow him on Twitter @Andrew_M_Willis.

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