March data from the Canadian Real Estate Association showed average urban prices up by a modest 4.3 per cent, if you exclude the rocket-propelled Vancouver market (it was up by a remarkable 13.4 per cent from an already very high level).
By comparison, Canada's other major metropolitan areas had price gains less than half the size of Vancouver's. Montreal was up by 4.6 per cent over the past year, Toronto by 4.9 per cent.
Outside of British Columbia, then, we're getting an encouraging signal that the market is cooling gradually, something that could allow price gains to slow while incomes catch up -all without the need for any disconcerting drops.
A key trend to watch this year will be how consistently prices continue to slow. Personal incomes will be up by an estimated five per cent this year, says Douglas Porter, deputy chief economist at BMO Capital Markets, Meanwhile, many analysts think that home-price increases will slow further or even stop entirely by late this year. That's probably the best possible scenario for the market, since home values are widely conceded to be inflated in most cities across Canada.
A report by BMO Capital Markets last month found that the ratio of prices to incomes is about 14 per cent higher than its long-run average, or "moderately overvalued."
By comparison, a genuine bubble, like the one that peaked in the United States six years ago, found this ratio a whopping 26 per cent above average.
Nevertheless, even moderate overvaluation is not good for home affordability and probably not sustainable for long, so price gains will have to slow below the pace of income growth at some point. That could very well begin this year, as interest rates rise, discouraging some buyers.
At the worst, declines of 10 per cent or so in the costliest cities, Vancouver and Toronto, are "not unthinkable," believes economist Benjamin Tal at CIBC World Markets.
A more widely anticipated scenario, though, would be for the market to slowly weaken as interest rates rise gradually through this year and next. Prices in most markets could escape significant declines.
As Tal put it in a note to clients on Friday: "We expect that the spring season will be relatively strong with activity probably surprising on the upside. Following the spring, we expect the market to flatten -with potentially some moderate downward pressure on prices ..."
This view is a bit more pessimistic than that of some other analysts. Porter doesn't rule out small declines in some markets as rates creep up but thinks it more likely that prices will stall later this year and then simply stagnate for two or three years until incomes grow enough to make the market affordable for more buyers.
Similarly, Royal Bank economist Robert Hogue, who did a detailed analysis of the housing market two months ago, expects prices to stall late this year in most markets but doesn't see any obvious trigger for a national sell-off.
A key trend to watch this year will be how consistently prices continue to slow. Personal incomes will be up by an estimated five per cent this year, says Douglas Porter, deputy chief economist at BMO Capital Markets, Meanwhile, many analysts think that home-price increases will slow further or even stop entirely by late this year. That's probably the best possible scenario for the market, since home values are widely conceded to be inflated in most cities across Canada.
A report by BMO Capital Markets last month found that the ratio of prices to incomes is about 14 per cent higher than its long-run average, or "moderately overvalued."
By comparison, a genuine bubble, like the one that peaked in the United States six years ago, found this ratio a whopping 26 per cent above average.
Nevertheless, even moderate overvaluation is not good for home affordability and probably not sustainable for long, so price gains will have to slow below the pace of income growth at some point. That could very well begin this year, as interest rates rise, discouraging some buyers.
At the worst, declines of 10 per cent or so in the costliest cities, Vancouver and Toronto, are "not unthinkable," believes economist Benjamin Tal at CIBC World Markets.
A more widely anticipated scenario, though, would be for the market to slowly weaken as interest rates rise gradually through this year and next. Prices in most markets could escape significant declines.
As Tal put it in a note to clients on Friday: "We expect that the spring season will be relatively strong with activity probably surprising on the upside. Following the spring, we expect the market to flatten -with potentially some moderate downward pressure on prices ..."
This view is a bit more pessimistic than that of some other analysts. Porter doesn't rule out small declines in some markets as rates creep up but thinks it more likely that prices will stall later this year and then simply stagnate for two or three years until incomes grow enough to make the market affordable for more buyers.
Similarly, Royal Bank economist Robert Hogue, who did a detailed analysis of the housing market two months ago, expects prices to stall late this year in most markets but doesn't see any obvious trigger for a national sell-off.
Indeed, in one big market, Montreal, where renting has long been more common than in most Canadian cities, a long-term shift toward home ownership seems to be developing, potentially supporting home prices, Hogue says.
He's still researching this apparent trend, but speculates that it could be behind the unexpected strength and resilience of the housing market in Montreal over the past few years. Such a development, if it's real, could conceivably lend a little extra support to the Montreal market as the national one cools, although Hogue isn't ready to bet on this.
Vancouver is another city that's had stronger sales and price gains than analysts would have expected, although "strong" doesn't really do justice to this market's astonishing price gains.
"It's a little puzzling," acknowledges Hogue, who, like others who watch Vancouver real estate, can conclude only that a flood of wealthy Asian buyers continues to support sky-high prices.
In a February report on affordability across Canada, Royal Bank economists found a typical two-storey home in Vancouver cost $780,700, double the average Canadian price. By comparison, such a home would have cost $342,600 in Montreal or $570,100 in Toronto.
"When you look at the local fundamentals, nothing can really explain that," says Hogue. "I think it does raise some red flags because it depends on a constant flow of imported money. If the flow stops, the locals just can't pay those prices."
For this reason, Vancouver is the one big exception to the widespread feeling that Canada's real estate market is probably coming down to a soft landing. It's hard to find any predictions of disaster, simply because this phenomenon has no obvious parallel, but few seem confident that the Vancouver market is stable.
Source http://www.vancouversun.com/He's still researching this apparent trend, but speculates that it could be behind the unexpected strength and resilience of the housing market in Montreal over the past few years. Such a development, if it's real, could conceivably lend a little extra support to the Montreal market as the national one cools, although Hogue isn't ready to bet on this.
Vancouver is another city that's had stronger sales and price gains than analysts would have expected, although "strong" doesn't really do justice to this market's astonishing price gains.
"It's a little puzzling," acknowledges Hogue, who, like others who watch Vancouver real estate, can conclude only that a flood of wealthy Asian buyers continues to support sky-high prices.
In a February report on affordability across Canada, Royal Bank economists found a typical two-storey home in Vancouver cost $780,700, double the average Canadian price. By comparison, such a home would have cost $342,600 in Montreal or $570,100 in Toronto.
"When you look at the local fundamentals, nothing can really explain that," says Hogue. "I think it does raise some red flags because it depends on a constant flow of imported money. If the flow stops, the locals just can't pay those prices."
For this reason, Vancouver is the one big exception to the widespread feeling that Canada's real estate market is probably coming down to a soft landing. It's hard to find any predictions of disaster, simply because this phenomenon has no obvious parallel, but few seem confident that the Vancouver market is stable.
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