The pace of housing construction fell slightly in December in yet another sign that Canada’s once-hot real estate market may be headed for a soft landing with home sales declining while prices remain stable.
The Canada Mortgage and Housing Corp. said on Wednesday the pace of housing starts fell in December, reaching 197,976 starts compared to the upwardly revised 201,376 in November.
The decrease was mainly attributed to a decline in rural starts, while urban starts remained stable, the agency said.
“Today’s data suggest that the homebuilding sector, once an engine of growth for the Canadian economy, is on a clear softening trend,” said Emanuella Enenajor, an economist at CIBC World Markets.
The data follows similar predictions on Tuesday from one of the country’s largest real estate agencies and some bank bosses. The message: even while a drop in Canadian house sales is likely to continue, the market is likely headed for a soft landing as opposed to a crash.
The cooling off is largely due to measures put in place by the federal government in the summer to make it harder to get a mortgage, which in turn slows the housing market and forces people to get a handle on their debt.
Prices set to remain stable
Meanwhile, house prices remain relatively stable on a national basis even as house sales decline.
Prices are not necessarily following a drop in sales, with the exception of some markets such as Vancouver, because there’s not a flood of supply of new listings hitting the market, said Sal Guatieri, senior economist at BMO Capital Markets.
“There’s two things that could force people to sell their house: one, if interest rates rose dramatically, second, if they lost their job. Both of those shocks occurred before the U.S. housing bust. In Canada, those conditions are just not there.”
On Tuesday, real estate agency Royal LePage forecasted a brief, mild correction to the housing market in the first half of 2013. It also predicted the average national house price will be 1 per cent higher by the end of the year compared to 2012.
Housing starts: piece of the puzzle
The seasonally adjusted annual rate of urban starts remained relatively stable in December, reaching 178,870 units. Single urban starts rose by 8.6 per cent to 67,419 units, while multiple urban starts fell by 4.7 per cent to 111,451 units, CMHC said.
Rural startswere at a seasonally adjusted annual rate of 19,106 units in December.
Looking over a slightly longer rather than month-to-month data suggests construction is above what would be in line with population growth and immigration, said David Tulk, chief Canada macro strategist at TD Securities.
“So what they’re saying is you’re building more than where there is demand right now,” said Tulk.
Given the federal mortgage-tightening measures, the typical scenario would be for house sales to weaken, followed by potentially lower house prices and construction. But it’s too early to tell the longer-term impact.
“We are biased to see sales drift lower over the next couple of months and then stabilize by the second quarter or maybe the third quarter,” said Tulk.
“Prices should also stabilize. It’s really a treading water scenario for the housing market. I think a lot of the substantial increases in price across most markets are in the rearview mirror.”
From Yahoo Finance