Few predicted 2013 would turn out as well as it did for Canada’s housing market.
Around this time last year, sales were slipping and sellers were worried they may have missed the opportunity to make a decent profit on their homes. Buyers, meantime, were starting to feel like they had the upper hand.
Economists, many of whom were predicting a steady decline in sales, were left scratching their heads. Housing bubble forecasters looked liked curmudgeons.
By the time 2013 came to a close the Canadian Real Estate Association (CREA) - which was forced to increase its housing outlook a few times since the spring - was describing the market as volatile but “remarkably stable” overall.
Sales across Canada rose 0.8 per cent to about 457,900 units in 2013, compared to a year earlier, marking the sixth straight year of sales around the 450,000-unit level, according to CREA. That up from CREA’s more-negative prediction in March that sales would slide nearly 3 per cent to 441,500 in 2013.
It’s that “soft landing” description that policymakers were hoping for after tightening mortgage rules for four consecutive years until mid-2012, with a goal of preventing a U.S.-style housing crash.
Market watchers believe slowly rising mortgage rates pushed many buyers into the market mid-year, taking advantage of guaranteed rates before they expired.
Activity slowed in the last three months of the year, leaving market conditions “fairly well balanced, though slightly favour sellers at the margin, putting continued modest upward pressure on prices,” says Bank of Nova Scotia economist Adrienne Warren.
Outlook for 2014
The sales pace in 2013 was “neither too hot, nor too cold,” said TD Bank economist Diana Petramala. She is forecasting sales to stabilize this year and prices to grow by a “moderate” 2 per cent.
Many economists agree that demand for housing will remain steady this year as economic growth picks up and as interest rates remain around historically low levels.
“Although the risk of a downturn in the national market cannot be entirely dismissed this year, we judge that it is limited,” said RBC Capital Markets economist Robert Hogue.
Others are more skeptical.
Capital Economics economist Amna Asaf predicts sales to drop by about 4 per cent this year to around 440,000 units and down further to 400,000 by 2015.
Asaf says higher mortgage rates will put a chill on the market, driving up homeownership costs.
“This will price out some prospective home buyers, reinforcing the drop back in existing home sales that is already underway,” says Asaf.
That’s still a positive forecast when compared to the doomsayers who believe Canada’s housing market is a bubble about to burst.
The Organisation for Economic Cooperation and Development (OECD) and the Economist magazine have also warned in recent months that Canada’s housing market it overheated.
Canada’s housing market will be closely scrutinized again in 2014. A year from now we’ll see which predictions, if any, were accurate.