CREA Cuts Forecast Again Over November Numbers

CREA revises its housing market activity forecastThe Canadian Real Estate Association has once again corrected its forecast for the Canadian housing market, as November activity showed a dismal drop of 1.7 per cent from October, and a 11.9 per cent drop year over year.

It’s the second time CREA has adjusted its forecast since September when “lower than projected third-quarter sales have downgraded the prospects for activity this year in almost every province.” The association was prompted then to slash their forecasted number of resales to 466,900 units – and has further revised that number to 465,300 for the whole of 2012.

Pointing the Finger at Mortgage Restrictions

The downward trend has real estate professionals worried the market will continue to cool into 2013 – and they’ve acknowledged this summer’s mortgage policy rules as the source of their anxiety.

Put in place this June, the new policy capped mortgage amortization periods from 30 years to 25 for high-ratio borrowers, as well as limited HELOC borrowing amounts from 80 per cent to 65 per cent of a home’s value. It was a move that shut many would-be buyers out of the market altogether, or forced buyers to lower price points. This, along with government warnings that taking out debt at such low interest rates would lead to severe affordability issues down the road, has many would-be buyers opting out of a home purchase.

A Combination of Factors

Realtors are certainly blaming this drop in activity for denting in their business when economic factors should be providing stimulus to the housing market. In a press release Gregory Klump, chief economist at CREA, stated, “Interest rates have remained low and the economic backdrop has remained supportive for housing activity, so that should leave little doubt that recent changes to mortgage regulations are responsible for having cooled activity.”

Flaherty responded in a press release yesterday, noting that while the mortgage rule changes have indeed limited the buyer pool, a market slowdown can also be attributed to buyers voluntarily holding off. “I certainly believe that the steps we took to tighten the mortgage insurance rules had some effect,” he stated to the press. “The Office of the Superintendent of Financial Institutions tightened guidelines as well. And I think there’s an increasing awareness among the Canadian public that excessive debt is unwise in a time of historically low interest rates.”

Resales to Decrease

The slowdown in buyer activity has started to reflect in weakening resale prices, as the average November resale volume reported as 0.8 per cent lower than 2011. That’s a stark contrast to previous CREA predictions in September that sales would actually increase, but on a moderated scale. Now, the association is calling for 446,400 total sales next year – another decrease of two per cent.

The largest markets continue to be hardest hit – softening conditions in Montreal, Toronto and Vancouver are behind the nation-wide decline.

Related Topics

Mortgage News / Mortgages

One thought on “CREA Cuts Forecast Again Over November Numbers

  1. Of course Realtors are made – they’re losing business! But for those who don’t rely on consumers paying too much for a product, it’s a good thing. Prices have already started coming down and will continue to do so for some time, and that opens it up to buyers that were smart enough to wait out the rush of the past couple of years.

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