Bank of Canada at Odds with Re/Max over Housing Predictions

Housing Market Predictions

Is the Canadian real estate market healthy or overvalued? Is it the perfect time to buy a  house, or is the market heading towards correction territory? These are (literally) million-dollar questions – and our nation’s leading real estate experts can’t seem to agree on the answers.

This week, two housing forecasts were released by the Bank of Canada and Re/Max that are decidedly at odds; while the BoC indicates our housing market is headed toward a “soft landing”, Re/Max calls for increased sale activity.

Where is the Housing Market Headed?

In its quarterly monetary policy report last Wednesday, the Bank of Canada said it’s seeing indications of a moderation in the housing market,as resales and starts have fallen since last fall. Without getting overly technical, the share of GDP we’re expected to spend on residential real estate is expected to drop in the coming months.

While the BoC is taking the “glass-half-empty” view, Re/Max is optimistic. Canada’s largest residential real estate company revised its forecasts upward for 2015. Nationally, it sees home sales rising 4 per cent, up 0.5 from its previous forecast. In Canada’s hottest real estate markets, Toronto and Vancouver, it sees home sales rising 7 per cent and 6 per cent, respectively, up 3 per cent from its previous forecast.

Underlying Message Motives

It’s important to take the predictions from the Bank of Canada and Re/Max with a grain of salt. While the Bank of Canada tends to be overly-cautious with its predictions, Re/Max tends to be overly optimistic. It’s important to remember the self-interests of both parties. It’s no secret that the Bank of Canada is concerned about household debt. In fact, it has gone on record to say it’s the biggest threat to the economy.

While mortgage rates may be low today, the BoC is concerned that many homeowners could be in for a rude awakening when interest rates return to an upward trajectory. However, if and when that happens remains to the seen. With the Bank of Canada recently downgrading its GDP growth forecast for 2015 to a meager 1.5 per cent, interest rates aren’t showing any signs of heading up anytime soon. In fact, the Bank of Canada recently shocked the market by cutting the overnight lending rate to 0.75 per cent from 1 per cent in January due to plunging oil prices.

Meanwhile, Re/Max represents the interests of real estate brokers across the country. It’s in Re/Max’s interest to paint a rosier picture of the housing market to encourage homebuyers sitting on the fence to take the plunge and invest in the housing market this year. More activity in the real estate market, means more business for Re/Max.

Additional Industry Insight

That being said, the latest numbers from CREA seem to support Re/Max’s view. In March alone, home prices were up an impressive 10 per cent to $601,500 in Toronto and 11 per cent to $870,000 in Vancouver. However, when we take Canada’s two biggest real estate markets out of the equation, home prices only climbed by 2.4 per cent to $411,045 nationally.

Sean Cooper is a Financial Journalist and Personal Finance Expert, living in Toronto, Ontario. He offers Unbiased Fee-Only Financial Advice, specializing in pensions and the decumulation of financial wealth in retirement. Follow him on Twitter @SeanCooperWrite and read his blogs and request his writing services on his personal website: http://www.seancooperwriter.com/

Related Topics

Economic News / Mortgage News / Mortgages

One thought on “Bank of Canada at Odds with Re/Max over Housing Predictions

  1. Sean – as someone who bought a house over a decade ago and was concerned about the amount of debt I was taking on at that time, my take on the situation is that the BoC is correct and that the real estate industry is blowing sunshine up our behinds. Any first time buyer purchasing a house more than the 4x their net income is asking for trouble and a lifetime of mortgage slavery

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