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Red flags, a possible Vancouver correction and the Ontario and BC housing markets potential to become economic drags: forward-looking narratives for the Canadian housing market haven’t been glowing accounts of late.
Moody’s, an economic analysis firm, outlines a different storyline in its latest report, summarized in its title “More Moderation, No Hard Landing.”
“There has been a lot of speculation about Canada’s housing markets overheating during the past two years,” writes Moody’s Economist Andres Carbacho-Burgos in the report, published today.
“The [Moody’s Analytics] house price outlook calls for a deceleration of house price growth, not for a serious decline, though there are exceptions for smaller regions,” it says.
Moody’s looks at factors including Canadians’ per-capita disposable income, land values and consumer spending to forecast future home prices in Canada.
It predicts detached home prices will rise 8.7 per cent this year before annual growth begins to slow.
For 2017, it calls for appreciation of 5.4 per cent. In 2018, Moody’s expects standalone home prices will increase 3.2 per cent, and in both 2019 and 2020 rise 2.2 per cent.
It will take until 2021 for price growth begin accelerating again, with a 2.5-per-cent uptick forecast for that year.
The condo market will take a similar path, the report states.
Following a 4.7-per-cent increase this year, prices will move upwards by a more muted 3.2 per cent in 2017 and 2.4 per cent through 2018.
Like on the detached side, growth is projected to be the same in 2019 and 2020, tracking at 1.7 per cent in each year before rising 1.9 per cent in 2021.
One factor that safeguards Canada from a widespread crash that topples the financial system is that the country has different industries that are supportive of economies in different regions across the country, the report suggests.
“As a result, there may still be individual regions within Canada where housing markets perform poorly in coming years, but the baseline forecast is for no overall national house price correction,” adds Carbacho-Burgos.
Moody’s acknowledges the possibility that Canada’s housing market is overheating right now, but says deteriorating affordability and a potential upswing in housing starts leading to a greater supply of homes are supportive of a slowdown rather than a collapse.
“Some of the largest house price imbalances are the result of international wealth inflows, rather than excessive risk-taking by mortgage lenders, so there is little systemic financial risk,” he says.