Housing Market Stable : Despite Strong Outside Influence
The more things change, the more they stay the same- at least when it comes to the Canadian housing market, according to RBC economics in their most recent housing market update.
In their last forecast issued in July, they predicted stability would characterize the housing market. However, this forecast was based on the premise that historically low interest rates would finally begin their ascent, and that there would be sustained growth in the Canadian economy. Months later, we know that neither of these points was completely accurate through the late summer and into the fall.
We know of course, that financial instability has run rampant in various locations around the globe since then, creating headwinds that are blowing forcibly on the Canadian economy. Volatility and instability have been thematic threads over the last few months, causing, among other things- a hold on raising interest rates for the foreseeable future.
That said, the results on the Canadian housing market, in the midst of this uncertainty and volatility, have remained largely stable: “Developments in global financial markets since July have somewhat altered the economic landscape but, perhaps surprisingly, not the bottom line for Canada’s housing market.”
“We still believe that the most likely outcome is one of stable resales and prices in 2012. While the global financial market turmoil has prompted us to revise our economic growth projection lower in September (taking 2012 down to 2.5% from 3.1%), we now expect interest rates to remain low for a longer period of time (until the middle of 2012 in the case of Bank of Canada’s overnight rate).”
At the end of the day, although the origins of the headwinds that threaten the housing market may have changed, the end result will most likely be the same. “Again, we see the effect of these changes on housing demand largely being a wash: relative to our previous forecast, the extra boost from lower interest rates will compensate for the extra drag from slightly slower household income growth and more fragile consumer confidence.”
Despite continued hope for the housing market, RBC expressed in their July forecast concern for an erosion of affordability in the housing market. They re-iterated this belief in their most recent forecast, and urged continued caution and vigilance in matters of indebtedness:” In our July report, we drew attention to the fact that the market has had a significant run in the past decade or so, that affordability is on a deteriorating path and that household indebtedness is high, and these factors make the Canadian housing market susceptible to a downward correction in the face of a negative shock. This susceptibility certainly is no lesser now.”