'Soft landing' seen for house sales

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'Soft landing' seen for house sales
Scotiabank, CMHC agree real estate market slowing — but risk of crash low
May 15, 2008

Tony Wong
BUSINESS REPORTER


Canada's housing market is "coming off the boil" but the risk of a major correction is still low, says a report by the Bank of Nova Scotia released today.

Existing home sales have fallen for four consecutive months and are running at 15 per cent below last year, says Scotiabank economist Adrienne Warren in her report.

"After many false calls, there is now convincing evidence that Canada's housing market has come off the boil," says the economist.

Adjusted for inflation, the average resale home price in Canada registered its first quarterly decline in seven years in the first quarter of 2008.

The Scotiabank report was echoed by The Canada Mortgage and Housing Corp., which released a forecast Thursday showing new home construction in Canada will slow to 114,650 units this year, from last year's 228,343 units, with seven out of 10 provinces registering declines.

As well, the country's national housing agency says sales of existing homes are expected to fall by 8.5 per cent.

The downward trend will continue in 2009, with housing starts dipping to 199,900 units and existing home sales crumbling another 2.3 per cent to 465,000 units.

"Most of the pent-up demand that built up during the 1990s has now been fulfilled and residential construction activity will gradually move in line with Canadian demographic fundamentals," said CMHC chief economist Bob Dugan.

The cooling is most evident in western cities such as Calgary and Edmonton as both centers have "officially moved into buyers' territory," says Scotiabank's Warren.

The softening in demand is consistent with usual late-cycle developments that include reduced affordability, limited pent up demand and increased supply, says Warren.

Price gains should slow further in 2009 with the return of a balanced market for the first time in a decade, forecasts the bank.

Warren says she is forecasting a "soft landing" for the Canadian housing market, with somewhat lower sales and construction, and period of flat inflation adjusted home prices.

However, a major risk to the forecast is whether there is a further protracted downturn to the U.S. economy, which would have "serious repercussions" for domestic output, particularly in provinces such as Ontario.

Tighter credit conditions, and heightened global financial market volatility pose additional downside risk to the housing market going forward.

Scotiabank is the second bank in the last month to declare that the bull run on the real estate market is history. BMO Nesbitt Burns deputy chief economist Doug Porter called it first when he declared in an economic note that the housing boom in Canada was "officially over."

With files from the Canadian Press

Source : TheSTar, Toronto


Interesting Article. I just visited this last weekend a Preview opeing of Semis here in Mississauga and People were still liniing up from 2:00am waiting for office to open up and the Prices still seems to be going up and up ...