- Bloomberg News
In their latest forecasts, Bank of America-Merrill Lynch and Canadian real estate brokerage Royal LePage agree that Canada’s housing market is currently in a state of correction, but a U.S.-styled housing crash, like the one seen in 2007 and 2008, isn’t in the cards for 2013.
“The housing market is well into a cyclical correction,” Royal LePage said in its report, adding “fears of a sharp or drawn out collapse are unwarranted. Home prices have risen faster than salaries and wages for three years and the market requires time to adjust.”
As for prices, the two have differing views.
BofA-ML sees prices for homes in Canada falling by 5% over the next year, it said in its report.
Canadian home prices are currently too high relative to economic fundamentals, with the long term fair value of Canadian homes suggesting that prices are roughly 5% to 15% overvalued, BofA-ML says.
Digging a bit deeper, the bank sees a growing supply and demand imbalance in the Canadian housing market. While recent changes to mortgage rules from the federal government will continue to price out some marginal buyers in the near term, other buyers will reassess the amount they can spend, it says.
Meanwhile, Royal LePage forecasts that the price of an average Canadian home will rise by a modest 1% in 2013.
Canadian home prices will see a “very modest” appreciation over the next two years, as economies in both the U.S. and Canada gradually improve and family incomes climb slowly, the brokerage said.
“More home buyers moved to the sidelines as 2012 progressed, as economic uncertainty abroad and reduced affordability became a drag on the market, however house prices proved resilient,” said Phil Soper, president and chief executive of Royal LePage.
Canada’s housing market will continue to be closely watched over the next week. Seasonally adjusted housing starts for December will be reported on Wednesday, while new home prices are due out Thursday.
By David George-Cosh