Canadian housing forecast report ……
Highlights of the report:
- We have updated our housing forecasts for Canada and the provinces to reflect recent changes to our outlook for the national and provincial economies, interest rates and oil prices. These changes include substantial downward revisions to oil price assumptions—to US$65 per barrel in 2015 and US$74 in 2016 (WTI, annual average basis)—a realignment of provincial economic growth (favouring Central Canada and BC at the expense of Alberta), and a lower path for longer-term interest rates (although they are still expected to rise).
- The factor having the biggest effect on our housing forecasts at the national level is the later-expected start to, and more subdued pace of, the increase in longer-term interest rates. This results in higher levels of home resales in Canada and slightly stronger price increases than we previously anticipated for 2015.
- Significantly lower assumed oil prices alter the provincial composition of forecasted housing market activity across Canada but have limited impact overall. We have downgraded our projections for home resales and prices in Alberta and Saskatchewan—similar adjustments in Newfoundland are not readily apparent in Atlantic Canada’s aggregate numbers—however, we have also boosted projections in net oil-consuming provinces, including Ontario, Quebec and BC.
- Despite changes to underlying assumptions, our base-case scenario for Canada’s housing market remains largely unchanged: we believe that rising interest rates and increasingly strained affordability will bring about a moderation of overall activity. On an annual basis, we expect this moderation to translate first into a levelling off of resales nation-wide in 2015 before becoming an outright decline in 2016.
- Our base-case scenario projects fairly sizable resale declines in Alberta and Saskatchewan starting in 2015, although such would unlikely qualify as market ‘crashes’. In fact, we expect home prices to continue to rise in Alberta in 2015, albeit at a much slower pace than in 2014.
- We anticipate that any softening in oil industry-sensitive markets will be offset by gains elsewhere in the country in 2015. More specifically, we believe that resales in BC, Ontario and Quebec have more room to increase before higher interest rates exert a significant cooling effect (more likely to take place in 2016). Accordingly, we expect home prices to rise at a decent clip in Ontario and BC in 2015 (price increases in Quebec will be restrained by plentiful supply).
- We continue to point to 2016 as a period most likely to prove challenging for Canada’s housing market. Our scenario for interest rates shows a substantial cumulative rise by then, which we believe will cause resales to decline in all provinces that year. We also expect small drops in prices in the majority of provinces.
- Risks facing Canada’s housing sector are significant, both on the downside and upside. Downside risks include a severe slump in the energy sector that would far exceed gains in other parts of the economy or any other event causing widespread job losses. Upside risks include lower-than-expected interest rates and a stronger-than-expected economy.
Link to the full report
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