Bank of Montreal economics published a Special Report last week on the Canadian housing market which seems to provide ample evidence that markets really are in the process of achieving the much sought after “soft landing” after federal policy makers took steps to cool the market last summer. The bank also predicts that the soft landing will likely continue. This analysis is obviously good news for the real estate and mortgage industries in Canada. There is growing consensus that re-sale transaction volumes have stabilized at levels more in line with historical averages. This means that the drop of about 9% from volumes seen in the first half of 2012 is the new normal level and will likely continue on this pace, after the bite taken by the mortgage rule changes in July of last year. The not-so-good news then is that the pie is clearly smaller and will probably stay smaller for some time.
Housing starts have also adjusted to slowing demand and are now trending at a rate much closer to the rate of household formation – which was and always is inevitable. With a couple of well-known exceptions (like the Toronto condominium market), the bank suggests that, despite the rate of housing starts running well above household formation rates prior to the slowdown, there should be no “material overhang” from the run-up in supply. In certain segments, like the Toronto condo market, excess supply will ultimately bring downward pressure on prices. Re-sale markets are characterized by the bank as “balanced” and not just in the usual sense of the sales-to-listings ratio being around 50% (which it is) but also with respect to prices and relative ongoing price stability. The Greater Toronto and Vancouver Areas, home to 25% of Canada’s population, may see some “moderate declines” in prices but other regions like Saskatchewan and Alberta should continue to see price appreciation. Overall, prices will be “steadier” this year – and steady prices and valuations are key characteristics of the soft landing seen so far.
BMO Condo Buying Report
As part of its Housing Confidence Report, BMO published survey data specific to condominiums last week. The data measures intentions among prospective buyers over the next five years in Canada’s four largest urban markets: Vancouver, Calgary, Toronto and Montreal. Looking first at Vancouver, the intention to buy a condo is down is down 5 points from a year ago to 28% among prospective buyers. The Calgary market reflects the current affordability challenges as condo buying intentions have risen 8 points to 33% while intentions to buy a traditional home have dropped sharply from 71% to 58%. In Toronto, condo buying intentions are up 11 points from last year to 31%. Montreal presents a different scenario where general home buying intentions are up 16 points to 62% but condo buying intentions have fallen by 3points, to 24%.
Demand for condos seems to be growing among baby boomers who might be looking to downsize, decrease home maintenance and increase their sense of security. Condo buying intentions are much higher among those over the age of 50 than they are for those under 50 (30% compared to 17%).