After years of robust growth, the Canadian housing market has cooled off significantly, new data reveals.
Canada Mortgage and Housing Corp. reported last week that new home construction fell to a seven-year low in November. This, coupled with October’s news that existing homes sales plummeted 14 percent in October, the largest drop since June 1994, has given Canadian housing experts a sense that more pain is forthcoming.
“It will get significantly worse because housing starts are a lagging indicator,” said Brian Johnston, president of Monarch Corp., one of Canada’s oldest and largest real estate companies.
Housing starts in Canada have been trending downward since they peaked at an annual rate of 277,000 two and a half years ago. The rate in October was 212,000. (By comparison in the United States, November’s seasonally adjusted annual rate came in at 625,000.) Market analysts believe that pent-up demand for homes has been increasingly satisfied over the past few years; the slowdown was not unexpected.
With one eye on the deteriorating housing situation in the U.S., the Canadian housing industry has been preparing for a decline in demand by cutting back construction, according to John Kenward, chief operating officer of the Canadian Home Builders’ Association. But while the industry is making the necessary adjustments, Kenward cautioned, “It is coming down faster than we would have anticipated.”
Statistics Canada, a widely used research firm, reported that existing home sales have fallen for four consecutive months, and year-to date sales are running 15 percent below last year’s levels. The firm reported that the softening housing market is mostly due to Western Canada, with the cities of Calgary (down 14 percent in home sales) and Edmonton (down 55 percent) moving into what it termed “buyers’ territory.” Those two cities were at or near record highs two years ago.
While the Canadian housing market is going through a significant slowdown, observers say it’s not nearly as pronounced as the U.S. market downturn because the housing market up North is fundamentally different. Analysts said the U.S. housing collapse stemmed from a home-price bubble that burst, taking down the overall economy; whereas the key influence on Canada’s generally healthy market is the drag from a U.S. recession.
As with the U.S., the inventory of unsold new homes has been expanding in Canada; but again, not nearly to the same degree. Most analysts believe the construction decline in Canada will speed up in 2009 as a slowing economy puts more pressure on prospective buyers.