Modest Firming In Global Housing Markets Through Mid-Year: Scotiabank
TORONTO, Sep. 11, 2013, 2013 (Canada NewsWire via COMTEX) --
Aggressive monetary policy easing, which
has anchored short-term interest rates near historic lows, has combined
with pent-up demand to reinvigorate global property markets, according
to the Scotiabank Global Real Estate Trends Report released today.
"Despite the sluggish pace of economic activity and elevated financial market
volatility, inflation-adjusted home prices strengthened year-over-year
(y/y) in the second quarter in the majority of countries we survey,"
said Adrienne Warren, Senior Economist at Scotiabank.
According to the report, the first-half 2013 improvement is most notable
in a number of advanced nations such as the U.S. and the U.K., but
prices are re-accelerating again in some emerging markets as well,
The report also indicates that Canadian housing activity remains
buoyant, though the underlying fundamentals for continued gains are
becoming less favourable. Housing affordability at a national level is
still within historical norms. However, it's expected to become a
bigger challenge for buyers over the coming year with interest rates
now drifting up. Home prices also are proving resilient.
"Potential overbuilding of condominiums in a number of major urban
centres remains a concern, especially in light of recent evidence that
demand is ebbing," added Ms. Warren. "In Toronto, where reasonably good
data on new home sales are available, purchases of both new low-rise
and high-rise homes have fallen sharply over the past year. Sales of
resale condominiums are holding up better, evidence that demand by
owner occupiers remains healthy."
Please read the full report below or at http://www.scotiabank.com/ca/en/0,,3112,00.html.
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Modest Firming In Global Housing Markets Through Mid-Year
Aggressive monetary policy easing, which has anchored short-term
interest rates in many countries near historic lows, alongside pent-up
demand are helping to reinvigorate global property markets.
Notwithstanding the sluggish pace of economic activity and elevated
financial market volatility, inflation-adjusted home prices
strengthened year-over-year in the second quarter in the majority of
countries in our survey. The turnaround is most notable in a number of
advanced nations such as the United States and the United Kingdom, but
prices are re-accelerating again in some emerging markets as well,
The United States maintains its position near the top of our international ranking, with
inflation-adjusted home prices rising 8% y/y in Q2. Demand is being
bolstered by moderate job growth and near record housing affordability,
while low inventories and fewer distressed sales are supporting prices.
We expect rising mortgage rates will moderate, but not derail the
recovery, which is still in its early stages from a cyclical
standpoint. Household finances have improved, consumer confidence is
rising and lending conditions are slowly easing. There is also
considerable pent-up demand for housing following the multi-year
Canadian housing activity remains buoyant, though the underlying fundamentals
for continued gains are becoming less favourable. Average
inflation-adjusted home prices increased 2½% y/y in Q2 alongside
strengthening sales volumes. Low borrowing costs and balanced market
conditions continue to attract buyers, though slowing job growth and
the recent uptick in fixed mortgage rates will likely cool activity
later in the year and into 2014. Affordability also is challenged in
some of Canada's largest urban centres, primarily for single-family
A number of European property markets are showing early signs of
revival, mirroring the nascent pickup in economic activity and consumer
confidence. The U.K. housing recovery is becoming more broad based, supported by 'Help to
Buy' stimulus measures introduced in the 2013 budget. Real prices moved
back above year-ago levels in Q2 for the first time in 2½ years. Sweden and Switzerland reported steady real price growth in the second quarter.
Conditions are weaker in the periphery. Spain's property market remains in a deep slump. While the rate of price
decline is slowing, there is limited prospect of a near-term turnaround
with the nation's jobless rate stuck at over 25%. Irish property prices appear to be bottoming as demand slowly picks up.
However, record mortgage arrears topping 12% of outstanding loans are a
significant hurdle to a sustainable housing recovery.
Asian property markets are for the most part holding up in the face of
slowing regional growth. Despite official policy efforts in recent
years to rein in credit demand, real house prices accelerated in the
vast majority of major cities in China in Q2. Australian, Indonesian and Thai property markets also gained momentum in the April to June period,
though conditions remain weak in India and South Korea, with prices contracting modestly last quarter.
Latin American property markets are mixed, with strong price growth in Chile, Peru and Colombia underpinned by relatively solid domestic demand and labour markets.
Real house prices in Mexico are flat, with modest nominal price appreciation eroded by persistent
inflation. Meanwhile, a weakening economy and high interest rates have
led to a sharp cooling in Brazil's previously red-hot housing market.
Focus on Canada's Housing Market
Canadian housing activity remains quite buoyant, supported by low
borrowing costs and reasonably healthy employment conditions. Home
resales, after declining through the latter half of 2012, recovered
over the spring and summer. The volatile pattern of sales may reflect
in part uncertainty surrounding repeated moves by Ottawa to tighten
mortgage rules and lending guidelines in order to slow the housing
market's momentum. Year-to-date, national home sales are trending
slightly below last year's levels, and are in line with the average
pace of the past decade.
Home prices also are proving resilient. The MLS Home Price Index (HPI),
which takes into account changes in the mix of sales by housing type
and location, shows national prices tracking around 2-3%
year-over-year. This modest rate of house price appreciation is
consistent with balanced market conditions and long-term house price
Regionally, Alberta continues to show the strongest overall conditions,
as strong population inflows and full-time job growth fuel growing
housing demand. Activity in British Columbia remains on the softer side
despite some recovery in sales and pricing in recent months. In most
other provinces, sales volumes are fairly 'typical' and market
Buyers are taking advantage of still attractive borrowing costs,
notwithstanding the recent upward drift in fixed mortgage rates.
Indeed, the prospect of rate increases may have drawn in potential
homeowners from the sidelines. Demand also is supported by immigration
and population growth, and mirrors strengthening consumer confidence.
New home construction and building permit demand have also firmed in
recent months. However, the 183,000 annualized housing units initiated
this year is well below last year's 215,000 units, and in line with
underlying household formation requirements. The reduction in starts
has been focused on multi-unit projects, primarily in Toronto and
Montreal, as builders react to reduced new home demand and rising
Underlying fundamentals are less conducive to a further ramping up in
housing activity. Any pent-up demand from last year's slowdown has been
satisfied with sales now back in line with historical averages.
Moderating job growth — employment gains have averaged 13,000 per month
this year, half the average gain in 2012 — also should temper demand.
Canadian households appear increasingly reluctant to take on additional
debt, heading to repeated warnings from policymakers. Consumer credit
and mortgage growth is advancing at its slowest pace in over a decade.
The household savings rate is trending up.
Housing affordability at a national level is still within historical
norms, with high home prices offset by ultra-low borrowing costs.
However, affordability is expected to become a bigger challenge for
buyers over the coming year with interest rates now drifting up. The
deterioration in affordability should be manageable under a gradual
upward trajectory for interest rates, moderate income growth and modest
to flat home price increases. A sharp spike in interest rates, a
decline in household incomes or a re-acceleration in home price
appreciation pose a greater risk. National affordability measures mask
more strained conditions in several major centres, primarily for
single-family homes in Toronto and Vancouver.
Homeowners have a number of options in the face of rising borrowing
costs. Variable rate mortgages are expected to remain near historic
lows in 2014, and move up only slowly thereafter as the Bank of Canada
gradually normalizes monetary policy. Many homebuyers are insulating
themselves to a higher rate environment by locking in at historically
low rates. For homeowners with a mortgage coming up for renewal, most
face a lower rate today relative to the discounted rate available 1, 3
and 5 years ago.
The combination of moderately higher interest rates and slowing job
growth will likely dampen home sales later this year and into 2014.
Meanwhile, increased supply should limit price gains. However, the risk
of a large price correction nationally remains low barring a major
adverse shock such as a sharp rise in unemployment. Sellers have been
responsive to shifts in supply conditions, mortgage quality is solid,
and arrears rates are low and edging lower.
Slowing home sales should in turn lead to a reduction in new home
construction. We expect starts will fall to about 170,000 units in
2014, below demographic replacement demand. A period of below-average
construction will help absorb excess housing stock. Unsold inventory
has been creeping up in recent years with starts exceeding household
formation trends, but is not particularly high from a historical
Canada's Major Condo Markets Are Rebalancing
Potential overbuilding of condominiums in a number of major urban
centres remains a concern, especially in light of recent evidence that
demand is waning. In Toronto, where reasonably good data on new home
sales are available, purchases of both new low-rise and high-rise homes
have fallen sharply over the past year. Reduced expected returns have
dampened investor demand for new condos, while high prices and supply
constraints have undercut low-rise sales. Sales of resale condominiums
are holding up better, evidence that demand by owner occupiers (which
dominate resales) remains healthy.
Homebuilders are responding to the shift in market conditions. Toronto
housing starts dropped from a record 48,000 units last year to a 33,000
annual rate over the first eight months of 2013. Based on annual
household formation of close to 38,000 from 2006-2011, starts have
moved back below underlying housing demand.
The slowdown primarily reflects fewer high-rise projects breaking
ground. Toronto apartment starts have fallen almost in half this year,
from 30,000 units in 2012 to an annual rate of 16,000 from January
through July. Given the weakening trend in new home sales, construction
will likely move even lower over the coming year. Toronto apartment
starts fell to an annual rate of 13,000 in 2009-2010 following the
recession slump in sales.
Despite the slowdown in starts, a record number of completed condominium
units will come onto the Toronto market over the next two years. Given
strong condominium rental demand — lease transactions reached a record
high in Q2 — low vacancy rates and rising rents, we expect a large
number of investor-owned units can be absorbed by the rental market.
Even so, new supply will likely outstrip demand, putting some downward
pressure on new and resale condominium prices.
There are also potential imbalances emerging in the Montreal and
Vancouver condominium markets. Here too builders are slowing the pace
of new construction in order to reduce inventories — apartment starts
this year are down roughly 30% and 10%, respectively. Data on new
condominium sales for these markets are limited, though resale reports
point to somewhat softer conditions.
Over the medium term, a number of factors will continue to support
homeownership condominium demand. These include the high cost of
single-family homes in Canada's largest urban centres, lifestyle
considerations (e.g. the desire for shorter commutes and lower
maintenance) and demographic shifts (e.g. immigration, an aging
population and the rise in one-person households). From a supply
perspective, development restrictions and land constraints are expected
to continue to promote urban intensification.
To view this news release in HTML formatting, please use the following URL: http://www.newswire.ca/en/releases/archive/September2013/11/c6009.html
Adrienne Warren, Scotiabank Economics, at (416) 866-4315,
email@example.com; or Joe Konecny, Scotiabank Media Communications,
at (416) 933-1795, firstname.lastname@example.org. For more Scotiabank economic
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