Wednesday, February 1, 2012

Canadian housing is ‘pricey,’ but far from a bubble: BMO

OTTAWA—The Bank of Montreal says Canada’s somewhat pricey housing market is likely to cool, not crash.

The bank’s economists say the only real trouble spot is Vancouver, where there are plenty of vacant high-priced condos going begging.

The report suggests that alarms about Canada’s housing market by international observers, from the International Monetary Fund to The Economist magazine, are exaggerated or simplistic.

Even Toronto’s hot condo market — one of the subjects of many of the warnings — is more likely to cool rather than collapse, the economists say.

A comparison of house prices to household incomes shows an increase from a decade ago, but not an excessive one, the report points out.

Nor are most Canadians close to an American-style debt wall that preceded the subprime crash in 2007.

Nevertheless, the BMO economists say house values are somewhat pricey and expect sales, starts and prices to flatten out this year.

2012: A Housing Market Flatline

According to a new report from BMO Economics, there won’t be much fanfare in the housing market this year, but there won’t be much cause for concern either. They predict that, through 2012, both prices and sales will be flat.

“While seasonally adjusted sales did manage to rise 1.8 per cent from the prior month in December, sales were up a moderate 4.6 per cent from year-ago levels," according to Douglas Porter, Deputy Chief Economist, BMO Capital Markets. "Most signs continue to indicate that the market is broadly balanced on a national basis. The supply of existing homes for sale is 5.8 months, and the ratio of new listings to sales is also well within long-term norms."

Porter expects 2012 to be a year of moderation. "We look for both sales and prices to be roughly flat this year. That could be just what the policy doctor ordered, allowing incomes to catch up to higher prices."

"While the housing market is showing moderation, it's always important for Canadians to examine ways to reduce overall housing costs," said Katie Archdekin, Head of Mortgage Products, BMO Bank of Montreal.

Right now, as markets begin show signs of moderation, and as interest rates remain fairly low, now is a good time for Canadians to stress test their mortgages, and work towards shrinking their likely sizeable debt load, before the market and the economy change gears downwards.

With slowing economic conditions, many forecasters expect that 2012 will reflect a slowdown in the housing market.

One notable exception to that is Royal LePage, who expects the housing market in 2012 to continue its’ ascent. They forecast moderate growth through this year, with a market slowdown not appearing until 2013.