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The Canada Mortgage and Housing Corporation (CMHC) issued a forecast for the remainder of this year’s housing activity, and into 2011. By their calculation, the future of the Canadian housing market looks encouragingly stable.
Bob Dugan, Chief Economist for the CMHC, points out that, in late 2009 and early 2010, sales activity included much pent-up demand from early 2009. With the demand now exhausted, and with interest rates starting to creep upwards, the pace of activity in the resale market will finally ease. Dugan predicted that as MLS® sales ease and inventory levels increase, the existing home market will move toward balanced conditions in the next two years.
“Canadian housing markets have recovered from the low levels posted in 2009,” noted Dugan. “Moving forward, housing starts will moderate as activity becomes more in-line with long term demographic fundamentals. New measures for government-backed mortgage insurance introduced by the Government of Canada that took effect on April 19, 2010 will continue to support the stability of Canada’s housing market.”
From a pricing perspective, with the forecast of an improved balance between demand and supply, the average MLS® price is expected to stabilize through the end of 2010, and then rise modestly in 2011.
As CMHC points out, all real estate is local, and the trends in your area — or even in your building! — may not necessarily follow the national forecast. If you’re thinking of buying or selling, you are advised to obtain a detailed history of local real estate activity, specific to condominiums, and first-hand knowledge of new properties on the market.
Alberta’s economy to lead Canada in GDP growth
A recently released report by Scotiabank says that Alberta will experience a sharp economic rebound during 2010 and will lead all of the Canadian provinces in terms of GDP growth at 4.1%.
In general, all provinces have rebounded strongly, and the report forecasts Canadian output growth to average 3.6% this year, the strongest advance in a decade. For 2011, Scotiabank is forecasting that Alberta’s economic growth will be 3.4 per cent while Canada as a whole will average 2.7 per cent.
A strong pickup in investment will fuel growth in the energy and manufacturing sectors,
“Investment has perked up in the oil sands, as easing costs and higher oil prices revived investment intentions in late 2009, with $2.2 billion in outlays scheduled for 2010 alone. Renewed activity in the industry will lead to significant benefits flowing through the economy, with manufacturing and services all heavily tied to conditions in the energy sector. While the bulk of investment will stem from oil sand development and tight oil plays, recent revisions to the province’s royalty framework are a major positive for the natural gas industry.”
The Canadian Association of Drilling Contractors forecasts a significant increase in drilling activity in the third quarter of this year.
Retail sales have also shown strength so far this year, after declines during both 2008 and 2009. With the bulk of job growth still lying further ahead, additional gains are expected. Alberta residents remain the highest per capita spenders in Canada.
The report also points out how the province has also made efforts to diversify its economy with the development of its health sciences industry. Notably, the Alberta Innovates initiative provides funding for a wide variety of domains, including health, energy and the environment.
Alberta’s economy is one of the strongest in Canada, supported by the petroleum industry and, to a lesser extent, agriculture and technology. According to the Fraser Institute, Alberta has very high levels of economic freedom. On its Canadian Provincial Investment Climate Report, it shows how Alberta continues to set the pace and leads the country in terms of creating and maintaining a positive investment climate. It also claims that it is “by far the most free economy in Canada, and is rated as the 2nd most free economy of U.S. states and Canadian provinces.”
CIBC sees rates staying low into 2011
According to a new report from CIBC World Markets Inc., expectations that the Bank of Canada will begin to raise interest rates in the summer are correct, however investors should not be surprised if the rates continue to remain at a very low 2.5% through to 2011., CIBC’s chief economist Avery Shenfeld explained.
In CIBC World Markets’ latest Global Positioning Strategy report, Mr. Shenfeld lists several reasons for Bank of Canada Governor Mark Carney to keep interest rates subdued after July. He points out that the U.S. will probably have a more gradual approach to raising rates and if Canada gets too far ahead, that could send the Canadian dollar soaring.
“While factories are recovering in Canada alongside a global industrial revival, output remains nearly 20% below the pre-recession peak, and wages are now substantially above those stateside without the productivity gains to match. There’s only so much of a competitive challenge that non-resource exporters can take in short order,” Mr. Shenfeld said.
He also pointed out that inflation is not expected to rise much further and stimulus spending is expected to be reigned in by governments – including Canada’s – which will slow growth.
“If the U.S., the U.K., and Japan all move from huge stimulus to even modest restraint, Canada will feel it in our export prospects come 2011,” Mr. Shenfeld pointed out.
Mr. Carney has promised to keep interest rates where they are at 0.25% until the end of June. However, the latest reading of Canada’s economic growth showed the core inflation rate at 2.1% in February, far above the Bank of Canada’s forecast of 1.6% for the first quarter of the year. Many analysts believe the Bank of Canada will not wait until mid-2010 to raise rates.