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Canadian Housing Market Softness: the "Big One" or a Recalibration?

by Yvonne von Jena | October 2, 2018


In his most recent MacroMemo, RBC Global Asset Management chief economist Eric Lascelles, notes that the unusual weakness experienced by Canada’s housing market in the past year is likely a recalibration rather than the beginning of the end of a housing boom. However, he continues to look for rather more sluggish growth, pockets of housing weakness, and a variety of other factors to continue to impact the market.

What the Evidence Suggests

Specifically he writes, “the question has been whether this softness was the “big one” – the beginning of the end of the country’s decade-long housing boom, or instead a mere recalibration in response to less friendly housing parameters.”

“So far, the tentative evidence suggests the latter: housing resales have stabilized nationally and have even managed a slight rebound in recent months. It is the same with existing home prices – the rate of ascent is starkly lower than it was, but there has been a slight improvement in recent months. This raises the possibility that housing will revert to its prior ascent rather than exert a persistent drag on growth.”

Still Not Close to 2017 Record-Breaking Numbers

National home sales crept up 0.9% month-over-month in August, part of the Canadian housing market’s current warming phase, which began earlier this summer. While the sales bump is a welcome change from the slumping activity that characterized the first quarter of the year, it is still nowhere near the record breaking numbers seen in the spring of 2017.

Mr. Lascelles notes that home resales and prices have rebounded in recent months, though the rate of growth it still “starkly lower” than it was in the spring of 2017. 

This could mean that the market will continue its upward trajectory says Livabl, slowly moving towards the previously high conditions seen over the past few years. However, this is by no means a sure thing. Mr. Lascelles adds that while the market could heat up, there is a distinct possibility that it will remain relatively cool for the near future.

Base Case Is Actually More Sluggish Growth

“To be clear, this sunny picture is not our base-case scenario,” Mr. Lascelles writes. “We continue to look for rather more sluggish growth….pockets of housing weakness, and a variety of other factors.”


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