Following 16 months of gains, Canada’s housing market is finally showing a hint of weakness. Home sales slipped 8.2 per cent in June. Economists say it was an odd time for the market to run out of steam, considering the rapid job growth of the past six months. But, they add, there’s no reason to panic. Many are calling this a healthy development, a re-levelling and a return to something more sustainable.
While oversupply continues to depress prices in America—banks repossessed a record 270,000 U.S. homes this spring—Canada’s supply and demand are simply getting back to normal, says Adrienne Warren, an economist with Scotiabank. Marc Pinsonneault, senior economist with National Bank, agrees. “You saw sales going down,” notes Pinsonneault. “But you also saw new listings going down.” Pinsonneault says the June numbers are a result of Canadians starting to heed Mark Carney’s debt warnings. In March, the Bank of Canada governor cautioned Canadians that rising mortgage rates could put the squeeze on them, especially considering household debt has reached record levels.
Warren says that fears over rising interest rates have hurt sales, and she believes the harmonized sales tax (HST), introduced on July 1 in Ontario and British Columbia, is also partly to blame for the decline. (Toronto recorded one of the biggest drops in sales.) To avoid higher closing costs, wannabe homeowners pulled on their toques and went house hunting last winter instead of waiting until spring.
While a slowing U.S. recovery and mounting sovereign debt in Europe remain a concern hanging over the global economy, Warren says Canada’s housing prices may continue to fall over the next six months, but not drastically. And while the slowdown in the housing market will be a drag on the economy as a whole, there may be a silver lining. “The balance of power is in favour of buyers for the first time that we’ve seen in a decade, other than that brief blip during the recession,” says Warren. “By and large you’re looking at home prices down closer to fair value.”
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