Although the winds of economic uncertainty are blowing, 2012 is anticipated to be a year characterized by stability and balance within the Canadian housing market and the broader Canadian economy.
“Interest rates will remain stable and employment and immigration will remain supportive of the Canadian housing market,” said Mathieu Laberge, deputy chief economist at the Canadian Mortgage and Housing Corporation (CMHC). “But we will have to deal with a new recruit which is uncertainty. It really leads the global economy right now and that is impacting the Canadian housing market.”
Speakers at the recent CMHC Housing Outlook Seminar Series echoed the same sentiment — that although the global economy is facing extreme volatility and risk is prevalent, Canada can expect to feel the effects of stabilization well into the next 12 months.
“The good news is that we will see some growth in the economy, some growth in the job market and that means that a double-dip economic recession in North America is not likely in the cards,” Ted Tsiakopoulos, CMHC regional economist, said with an air of cautious optimism clearly felt throughout the series.
“We expect the conditions of the resale market and housing starts to be back in line with demographic fundamentals,” explained Laberge at the seminar in Toronto.
Prior to the recession, the housing market was firmly planted in sellers’ market territory, but during 2008 and 2009 it dipped into a buyers’ market, before briefly coming back around. Then in 2010, the market entered a balanced condition, characterized by housing prices growing more or less in line with inflation. “And we don’t expect that trend to change next year,” he said.
Closer to home, Tsiakopoulos said predictions for next year has Ontario markets lagging behind other Canadian regions. “Sudbury and Thunder Bay, as well as Hamilton, are really the only markets that will be posting growth in sales and housing starts next year,” he said. “More expensive, Southern Ontario markets will not hold up as well. In fact, we see existing home sales contracting in some of these more expensive communities in Southern Ontario.”
Tsiakopolous also said that it is unlikely Ontario will continue to lead the economic recovery and we’ll begin to see Western Canada step up to the plate. “Economic growth in places such as Alberta, B.C. and Saskatchewan are the regions that will be growing faster and moving forward. In Central Canada, represented by Ontario and Quebec, growth won’t be keeping up.” In 2011, Ontario fell below the Canadian average GDP growth and it looks like this trend will continue into 2012.
So why the upward momentum in Northern Ontario and out West? Currently we’re seeing a trend where private households and governments are deleveraging. These consumers and governments are therefore not driving spending, but rather focusing on paying down debt. “What’s happening now is that businesses are really driving spending; businesses are investing, businesses’ balance sheets are a lot healthier, so we’re seeing a lot of business investment. Where? In sectors such as oil, gas and the mining industry. And they are sectors that benefit the North, Northern Ontario and Western Canada, more so than Southern Ontario,” explained Tsiakopoulos at the Hamilton seminar.
Ontario is also being affected by the shift in buying power of the emerging markets globally. Markets such as China, India and, to some extent, Brazil and Russia, will lead the global economy through the next few years. “These emerging market economies are resource poor and as they grow they will continue to drive the demand for resources such as oil, gas, aluminum, steel and copper,” said Tsaikopoulos. “So that’s good news for Northern Ontario and Western Canada.
However, for the rest of Ontario, it’s been a slow transition away from traditional goods-producing sectors, such as automotive which has contracted significantly in 2011 as a Canadian export. Most of Ontario is also heavily tied to trade with the U.S., which is risky given the economic climate south of the border.
So although the outlook isn’t quite as rosy for Southern Ontario, Tsaikopoulos does point out that opportunity is driven by housing type. “In Ontario, over the last few years, more expensive, single detached housing is losing market share. In fact, less expensive, lower density housing has captured a larger share of activity, particularly in the new home market. And we think this story will likely continue into 2012.”
Tsiakopoulos explains this trend as an example of “defensive behaviour” or “risk aversion” by consumers, particularly in the sector of discretionary spending or “big ticket items.” And, he argues, this trend is spilling over into the rental versus home ownership debate as well, where we’re seeing first-time buyers deferring ownership and opting for lower price, higher density rental housing. “We’re also seeing investors warming up to residential real estate.”
Laberge agreed that 2012 will see opportunities lie with lower price, high density housing, but he pointed specifically to the effect that strong immigration rates will have on the Canadian market as a whole. A strong employment rate makes Canada attractive to new immigrants, which creates “a lasting effect on the market.
“When people first come to the country, they tend to move into the rental market so that’s the first short-term effect,” he continued. “That means an increase in demand for rental units and that will support that segment of the market. But then within a few months or years, they’re going from the rental market towards the homeownership market — that’s a kind of double support.” Now, Laberge pointed out, immigration levels for next year are predicted to be lower than in recent years; however, the level we’re expecting is still about 40 percent higher than the historical average — which bodes well for the current rental market and the future of home ownership.
Overall, cautious optimism seems to be the hallmark as we head into 2012. Canada — and Ontario — show promise of stability and balance, however a volatile, unstable global economic climate means that risk is ever present and the scales could be tipped at any time.
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