Canada’s housing market stable outlook for now

Canada's housing sector continues to show considerable resilience, providing an important pillar of support for the economy at a time when the much-anticipated rotation from household demand to export- and investment-led growth has been slow to materialize. Residential investment - transfer costs, new construction and renovations - was the strongest component of GDP growth in the first quarter of the year, rising an annualized 4.0%. The sector looks likely to add solidly to growth again in the current quarter.

The combination of early-year mortgage rate declines, continuing moderate employment and income gains, and ongoing population growth in key demographics are underpinning reasonably buoyant home-buying activity in most regions of the country. National home sales through May are up 5% from a year ago. The current sales pace is slightly above the average of the past decade. 

Market conditions have tightened somewhat this year, though are balanced overall, with inventory ratios - new listings-to-sales and months' supply - in line with long-term averages. The median increase in home prices across major centres this year is just 1½ % year-over-year (y/y). The national average price increase is considerably higher at 8% y/y, reflecting strong sales and price appreciation in Canada's costliest housing markets, notably Toronto and Vancouver.

New home-building and renovation activity also remain quite resilient. Housing starts this year are trending only moderately below the prior year's pace, notwithstanding challenging winter building conditions that likely hampered activity early in the year. Household renovation expenditures - including additions, alterations and new installation - adjusted for inflation increased close to 5% y/y through the first quarter of 2015.

"Steady home sales and price trends are forecast for 2015 at the national level, though significant regional variations are likely to persist. Historically low borrowing costs and moderate job and income gains should maintain affordability in the face of high home prices. Similarly, we expect builders to maintain construction around current levels in the near-term." said Scotiabank