Highlights
? Canadian housing has avoided a U.S.-style problem. Its current balanced state also mitigates risks to the economy.
? A near-term trough in sales has formed in July, earlier than expected. The uptick since then is not a blip, but will struggle to last beyond Q2/2011.
? Sales have done better as borrowing rates hit all-time lows in October. Better affordability will provides sales with near-term momentum while the Bank of Canada holds its policy rate at 1% until mid-2011. However, higher interest rates will dampen sales thereafter.
? Compared to our previous (September) forecast, annual home sales for 2011 have been revised up by 8% to 420K units, a 3% decline from the unchanged 2010 forecast of 450K units. On the flipside, sales for 2012 have been downgraded from 437K units to 400K.
? A more modest reaction on the supply (listings) side of the market and an improving economy will provide some partial offset to higher borrowing rates. Markets should remain fairly balanced, limiting the extent to which home prices will move. After turning in another solid gain this year, we predict a bout of modest price softness over the next two years.
