December 6, 2012
“The future ain’t what it used to be” –Yogi Berra
Happy Thursday! One of the awesome things about being a realtor and a mortgage guy is there’s a never a shortage of conversations to be had. Whether it’s just small talk at a party, sipping a latte at Starbucks or sharing a 20 second elevator ride, people are usually curious about what the future holds.
The good thing is, I’m honest and upfront—I’ll say something like: “I really don’t know and I doubt anyone does…” However, that said, my approach has never been to try and predict the future, but to observe events taking shape around us right now and thus try and determine what their outcome might mean down the road.
For example, a few weeks ago CMHC (Canadian Mortgage & Housing Corporation) released its 4th quarter Housing Market Outlook to little or no fanfare. As with many of these institutional reports, the made-me-yawn-factor was alive and well. The good thing however, is that lurking within the blah blah blahs were many hidden gems. I`ve extracted 8 trends worth watching as well as a list of potential risks that could derail their unfolding.
Short-term mortgage rates and variable mortgage rates are expected to remain near historically low levels, which will help support housing demand. The outlook’s base assumption is that rates will inevitably remain flat for the remainder of 2012 and rise modestly in 2013.
In the 12 months up until September 2012, employment grew by 1.0 per cent (+174,500), while the unemployment rate stood at 7.4 per cent. Over this period, full-time employment rose 1.1 per cent (+156,800), and part-time rose 0.5 per cent (+17,700). Employment is forecast to grow 1.9 per cent in 2013, which will support Canada’s housing sector.
Relative to those of other countries, Canada’s economy is expected to continue to perform well. Canada is expected to attract more immigrants (net international migration), which will push net migration up and positively impact housing demand in the medium to long term
Growth in incomes is expected to continue, albeit at a moderate pace due to modest economic growth in Canada and global markets. As a result, income will grow slowly in 2013, but still will support housing demand.
Recent changes for government-backed mortgage insurance was squarely focused on moderating housing activity across the nation. What it simply boils down to is that some potential buyers will have to save a larger down payment to offset shorter amortization periods and thus postpone their purchase or consider a less expensive home.
#6. Natural Population
Canada’s low birth rate should lessen the demand for additional housing stock in the medium and longer term. Population aging, however, will impact the type and tenure of housing demanded.
The stock of unoccupied new housing units has been stable in 2012, indicating continued strength in demand for newly completed homes. Moreover, the ratio of the stock of unoccupied new units to population, a simple gauge to assess potential over-building, is close to the historical average. Should the inventory increase substantially, builders may delay or reduce the size of some housing projects. This of course would lead to a sharper-than-expected cooling.
#8. Vacancy Rates
Vacancy rates across Canada’s metropolitan centres are expected to hold steady at 2.2 before declining to 2.0 per cent in 2013, reflecting expectations of modest purpose-built rental construction and strong rental demand due to high immigration. Low vacancy rates are expected to help support the multiple starts housing segment, through expansion of the rented condominium market.
So what are some of the risks?
● A more prolonged period of financial uncertainty in global markets centered on the European sovereign debt crisis as well as a more muted recovery in the U.S. and weaker growth in emerging markets could negatively impact Canada’s net exports and the country’s overall economic outlook. ● Recent levels of housing starts are expected to impact the number of newly completed and unoccupied units inventory in the short term. Should the inventory increase inordinately, builders may delay or reduce the size of some housing projects. This could lead to a sharper-than-expected moderation in housing starts. ● Elevated levels of household debt and house prices in some urban centres have made the country’s economy more vulnerable to some economic shocks. ● If interest rates or unemployment were to increase sharply and significantly, some of the more heavily indebted households could be forced to liquidate some of their assets, including their homes. This could put downward pressure on house prices and, more generally, on housing market activity.
“A weaker outlook for global economic conditions and the waning of the effect of pre-sales from late 2010 and early 2011, which contributed to support multi-family starts this year, will bring moderation in housing starts next year.
Nevertheless, employment growth and net migration will help support housing starts activity going forward,” said Mathieu Laberge, Deputy Chief Economist for CMHC.
“The average MLS® price is forecast to be between $363,200 and $367,000 in 2012 and between $363,100 and $377,900 in 2013. CMHC’s point forecast for the average MLS® price calls for a 0.2 per cent gain to $365,100 for 2012 and a 1.5 per cent gain to $370,500 for 2013.“