According to Bloomberg, CMHC is not as optimistic as their realtor friends who are always sure real estate price will keep going up for the next millenium, at least.
Canada Mortgage Trims Home-Starts Call on Slower Economy
Canada’s housing agency further trimmed its forecast for housing starts this year amid modest economic and employment growth.
The number of starts will drop 15 percent to 182,900 units, Canada Mortgage & Housing Corp. said in a report today from Ottawa, down from a May 6 forecast of 190,300 units. Construction will increase 3.3 percent in 2014 to 188,900 units, also less than the earlier prediction of 194,100 units.
Slow output and employment growth that started in the second half of 2012 means housing demand has weakened, CMHC said in the report, while mortgage rates remaining stable until mid-2014 will encourage a rebound. The report cited risks such as record consumer debts and a rising supply of units in some markets, mirroring concerns expressed by the finance minister and Bank of Canada Governor Stephen Poloz.
“Builders will be aware of the level of inventories of multi-family units and react accordingly,” the report said.
Multiple-unit housing starts will drop 21 percent to 103,100 units this year and increase 3.3 percent to 106,500 next year, the report said. Single-unit starts will fall 4.6 percent to 79,800 this year and rise 3.3 percent to 82,400 next year.
Economic growth will slow to 1.6 percent this year from 2 percent last year and rebound to a 2.4 percent pace in 2014, CMHC said. The agency forecasts that the five-year fixed mortgage rate will average 5.28 percent this year and 5.53 percent next year.
Sales of existing homes will fall 2.2 percent in 2013 to 443,400 units before rising to 468,600 units next year, the government-owned agency said. Home prices will rise 1.6 percent to C$369,700 ($351,400) this year and gain 2.1 percent next year to reach C$377,300.
And BoC warns realty risk is still as real as it can be …
Bank of Canada: Housing market cooler, still a risk
By PETER N. HENDERSON, Reuters
Canada’s heated housing market and near-record personal debt is less of a risk than it was a year ago, but the central bank is not letting down its guard just yet, a Bank of Canada official signaled on Wednesday.
“We are seeing a moderation over the last year in both the buildup of household indebtedness and also the related imbalances in the housing market,” Bank of Canada Deputy Governor Timothy Lane said in response to an audience question following a speech in Toronto.
“At the same time … that’s not to say that the risk has suddenly disappeared, and it’s still a risk that we’re watching very closely,” he said.
Canada’s housing market slowed dramatically in mid-2012 after the government tightened mortgage lending rules to head off a housing bubble. It was the fourth such move in five years. But the market has rebounded in recent months.
Canadians took on a record high debt load during the post-recession housing boom, taking advantage of five years of ultra-low rates. The latest revised data from Statistics Canada showed the ratio of household debt to income fell slightly to 161.8 percent in the first quarter from a record 162.8 percent in the third quarter of last year.
SHADOW BANKING A WORRY
A related risk, highlighted by Lane in his speech, is the rapid increase in the securitization of government-backed mortgages – an activity that has doubled in the past five years and which the central bank considers to be part of the unregulated “shadow banking” sector.
Securitization is the process by which assets such as mortgages are packaged into bonds or other debt instruments that can then be traded.
Lane said the increased use by banks and non-bank lenders alike of these securities as a low-cost funding option encourages more mortgage credit and less of other forms of credit.
“A key concern is the potential misallocation of resources away from non-mortgage lending toward mortgage credit – which, in the current economic environment, contributes to the buildup of imbalances in the household sector,” he said.
Low interest rate party may be ending
Watch the bond market and QE moves for early warnings that interest rates will start to rise in Canada.
The interest rate party for borrowers is almost over. After almost five years of historically low rates, we’ve started to see some upward movement in the cost of money.
Most people watch the central banks for indications that rates are about to take off. But that’s not where the real action is. It takes place in the rarefied world of the bond market where institutional traders like banks and pension plans operate. By the time the Bank of Canada gets around to acting, the bond market will have left it in the dust.
The first warning shot occurred a couple of weeks ago after some governors of the U.S. Federal Reserve Board indicated that the time has come to consider scaling back the quantitative easing (QE) program that is pumping $85 billion a month in new money into the economy.
Read more at The Star