The building, buying and selling of houses in Canada is set to cool at a modest pace next year with activity in the once-hot real estate market calming down as debt-strapped consumers find it tougher to get a mortgage.
Signs of a slowdown are everywhere as a string of data reports suggest moves by Ottawa to clamp down on mortgage lending rules this summer is filtering through the system. Whether it's a soft landing or a collapse is still being debated, but people on the ground or those crunching numbers are seeing the same thing.
"It's like we had a sale on real estate for the past 10 years and people scurried. Just like at a department store the shelves started to get empty. I think now we're entering into a period where this is just a new norm," said Tony Joe, a Victoria, B.C.-based realtor who has been in the business for over 20 years.
"People just aren't crazed about moving real estate as they were back in 2007."
The country's housing market has been slowing since the spring and even more noticeably since the federal government implemented its tighter mortgage rules in July in a move aimed at preventing a U.S. style market crash.
"The near-term outlook for housing is for a sustained weakening in activity albeit at a modest pace. This reflects stretched affordability relative to historical averages, high levels of household indebtedness relative to incomes, and global uncertainty," economists from Royal Bank of Canada said this week in an outlook report.
"Some offset will be provided by interest rates remaining historically low. We look for lower resale activity and home prices in Canada in 2013 and 2014."
But if expert forecasts are right the domestic market will experience a soft landing, not a crash. Canadian house prices are expected to drop 10 percent over the next several years, while homebuilding will slow sharply in 2013, according to a Reuters poll published in early November.
U.S. fiscal cliff and Canadian debt levels
For now, all eyes are on a couple domestic and international factors.
Linked closely to the housing market is the fact that Canada currently has stubbornly high household debt levels. Data showed on Thursday the debt-to-income ratio was at a record high of 164.6 per cent, which if adjusted puts debt levels near to those that precipitated the house U.S. market collapse.
"We expect housing demand to remain on the softer side for now, as households become more cautious about adding further to their already high debt loads," Adrienne Warren, a senior economist and real estate specialist at Scotiabank, said this week.
She added this could put some further downward pressure on sales volumes as well as prices, especially in markets that have already shifted into buyers' territory such as Vancouver or in certain segments that may be oversupplied such as Toronto's condo market.
The Bank of Canada recently noted sales of existing homes have declined and the growth in house prices has slowed, but said strong rates of construction, particularly in condos in some regions, have "increased concerns about future stock imbalances," the bank said.
Also occupying the minds of Canadians is the impact of the so-called U.S. Fiscal Cliff. In a Sun Life Financial survey released this week, nearly two-thirds of Canadians polled said they fear Canada's economy will suffer if the cliff, referring to the detonation of tax increases and spending cuts at the start of next year, isn't resolved by Jan. 1.
"To get a crash it's either a run up in interest rates, which we don't see, or caused by another factor like a slide in the economy, maybe, triggered by the fiscal cliff. Then I think housing would be at risk of turning into something nastier if there was another economic event that came and hit the economy now," said Doug Porter, deputy chief economist at BMO Capital Markets.
"If they don't mend the fiscal cliff or work around it we'll have a very severe increase in taxes and cut in government spending in the U.S. in 2013. That could tip the U.S. into an outright downturn and that would affect output and employment here and confidence and it would lead to consumers pulling back on all kinds of big-ticket items including housing."