The Canadian housing market continues to exceed expectations and is now forecast by many experts to remain healthy well into next year despite a slowdown in the overall economy.
The Canadian Real Estate Association revised its forecast upward Tuesday after reporting strong October sales. It now projects sales this year will be up 1.4 per cent from 2010, half a percentage point better than its previous forecast.
However, CREA expects there will be slightly fewer units sold next year than in 2011, but the 0.5 per cent decline is still an upward revision of its earlier estimate.
The association forecasts 453,300 home sales countrywide this year, up from 446,915 in 2010. The forecast for 2012 is 451,200 homes sold.
The latest RBC Housing Forecast released Tuesday also predicted 1.4 per cent growth this year, but was more upbeat than CREA about future sales, expecting a 0.4 per cent increase in 2012.
The revisions come at a time when central banks in Canada and the United States are keeping their key lending rates low to counter slowing global economic growth.
“There was no shortage of headline news in October about global financial market volatility and economic uncertainty, but it doesn’t appear to have dampened homebuyers’ spirits,” said Gary Morse, CREA’s president.
“Interest rates are at low levels and are likely to stay that way for some time to come. Homebuyers clearly see the opportunities that the current interest rate environment presents.”
The assurance of relatively low borrowing costs has likely given home buyers confidence while rising home values have kept new listings at a healthy level. Stable employment has provided some assurance to owners and buyers alike.
However, heavy borrowing activity signals dark clouds on the horizon for some households as debt reaches record levels. The most over-leveraged Canadians could find themselves unable to cope when interest rates eventually rise, federal Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney have warned.
Last month, sales activity on CREA’s multiple listing service was the highest since January and the national average price was up 5.5 per cent from October 2010.
Sales totalled 38,533 in October, up 8.1 per cent. The national average price for homes sold in October was $362,899, up from $343,950 — although average prices in local markets varied widely.
The RBC forecast also noted that home buyers do not appear to be fazed by news of worsening economic conditions.
“Developments in global financial markets since July have somewhat altered the economic landscape but, perhaps surprisingly, not the bottom line for Canada’s housing market,” RBC senior economist Robert Hogue said in the report.
Hogue now expects home prices to rise 5.3 per cent overall in Canada, compared with RBC’s earlier projection of 4.3 per cent, and by 0.5 per cent next year, up from the earlier forecast of a 0.1 per cent gain.
CREA forecasts a national average price rise of seven per cent in 2011 to $362,700, up from $339,049 last year. It expects prices to remain steady in 2012.
But while home prices keep inflating as demand remains robust, the October increase was actually the lowest since January, a welcome sign for overheating home prices, said CIBC economist Benjamin Tal.
“House prices, regardless how you look at them, they’re overshooting, vis-a-vis rent, vis-a-vis income, even vis-a-vis demographics,” Tal said.