Housing Market Growth To Contribute Less To Economy
Canada is indeed on track to economic capacity and recovery, according to the June edition of RBC’s Economic and Financial Outlook, as a number of domestic elements strengthened their contributions to overall GDP growth. However, the report found that our housing market will become less of an economic driver, forecasting continued decline in residential investment by 2.4 per cent this year, and 0.7 per cent in 2014.
Housing Starts Market Still In Danger
The report cites the mortgage rule changes made last July as a main factor for the slowdown, indicating that each market is still adapting to a decline in buyers, and the fallout from excessively strong pre-rule change conditions in 2012, which fueled rapid growth in the construction and housing starts industries.
Now, a shrinking pool of qualified buyers have many developers hitting the brakes on grandiose projects slated for this year and next. While the Canadian Real Estate Association adjusted their forecast earlier in the week due to higher than expected starts and sales, RBC points to continued challenges in many of Canada’s housing markets.
A Provincial Breakdown
British Columbia: Canada’s west coast has experienced the most dramatic downturn thus far, with housing construction to cooling steadily over the past three quarters. Stalled job creation, along with dropping provincial population growth also contribute to the decline in sales.
Alberta: This powerhouse province continues to defy the recessionary effects experienced by the rest of the nation. Sales, prices and starts continue to rise. CREA forecasts that the average home price will increase in wild rose country by 3.4 per cent by 2014.
Ontario: The housing market remains strong, largely in part to hot condo demand in Toronto, and strong buyer interest in the 905 region. Condo construction reached a 30-year high earlier in the year, though this is expected to moderate as developers complete current projects. However, this gap will be offset by higher investment in non residential structures and infrastructure, according to Craig Wright, senior-vice president and chief economic at RBC.
“While we anticipate slowing residential construction activity will leave a hole in the province’s economic accounts, strong investment in non-residential structures and infrastructures will more than fill it up,” he said in a statement.
Quebec: Residential investment won’t be très jolie in the la belle provence, as the market feels the squeeze of slow sales compared with 2012 numbers – the starts market has declined 15 per cent from last fall. Manufacturing and exports are expected to be the main drivers for GDP growth in the province.
A Decline In Mortgage Debt
A positive trend for Canadian homeowners – household mortgage debt has eased to the lowest level since 2001, with RBC reporting one third of households completely debt free. It’s another indicator that Canada’s overall economy is less vulnerable to shock, and is on track to a patient and steady recovery.
Revving Our Other Economic Engines
While recovery is still underway for our housing market, the report presented some good news for Canada’s hard hit exports industry, which saw an annualized increase of 2.5 per cent, adding 1.4 per cent to total quarterly GDP growth – the biggest contribution since 2011. Business spending is also anticipated to bridge the gap left by housing slack, expected to strengthen by 7.3 per cent in 2014 – on par with new Bank of Canada Governor Stephen Poloz’s urging in his first speech made Wednesday. “The good news is that the balance sheets of corporate Canada are healthy and the capacity to invest exists,” he said.
Week in Review
It was a week of little change on the Best Mortgage Rates table with the exception of the ever popular five-year fixed, which increased nine basis points to 2.83 per cent. The big banks were also on board with the upward trend, as TD Canada Trust hiked their five-year special offer fixed mortgage rate to 3.39 per cent, the second increase in as many weeks.