CREA Slashes Housing Market Forecast for 2012

CREA has cut its 2012 and 2013 forecast for the Canadian housing marketIt appears housing markets across the country are feeling the brunt of recent CMHC mortgage changes, as sales saw a 5.8 per cent nation-wide dip from July to August.  According to the Canadian Real Estate Association (CREA), this is the largest month-over-month decline since June 2010. The drop has prompted them to slash their forecast for housing market activity by 1.9 per cent for 2012, down to 457,800 units.

While the association expects home prices to rise moderately by 1.6 per cent this year to $365,000, this is anticipated to fall again to $364,500 in 2013.

Hitting Home in Canada’s Major Markets

The majority of downward movement has been seen in Canada’s largest urban markets including Toronto, Vancouver and Montreal. Ontario is anticipated to take the biggest hit to its housing market, and only Alberta and Manitoba are to remain unscathed as contracting market conditions become the norm.

To date, Toronto and Vancouver are hardest hit. While the average price in the GTA is up 6.1 per cent from last year’s levels at $501,058, sales activity has declined by 15 per cent. Vancouver continues to see post-rule change prices drop to $725,086, down seven per cent.

“While we always caution that housing market trends at the national level can and do run counter to trends in many local markets, the decline in activity in August was definitely the result of much of the country moving in the same direction,” CREA president Wayne Moen said in a statement to the press.

Feeling The Amortization Squeeze

The nation-wide decline indicates that some buyer segments, particularly those requiring high-ratio mortgages with CMHC backing (less than 20 per cent down), are effectively being priced out of owning a home due to amortization limitations imposed by the CMHC earlier this summer. The fourth round of such changes put in place by Jim Flaherty, the new policy shortened amortization limits for high-ratio buyers from 30 to 25 years. Built on previous rule changes shortening amortizations from 35 to 30 years, it appears the most recent restrictions, which stunned the market when put in place with 18 days notice, are hitting home when it comes to affordability.

“[The decline is] providing the first clear indication that the recent changes to mortgage regulations aimed at cooling the market are working as intended,” said CREA chief economist Gregory Klump in a press statement on Monday.

Related Topics

Mortgage News / Mortgages

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