The Canadian housing market, ranked by The Economist as one of the world’s most overvalued, looks to have finally hit the wall.
After peaking in August last year, house prices have begun to fall, down -1.2% nationally (see next chart).
More importantly, a new report from the Canadian Association of Accredited Mortgage Professionals (CAAMP) forecasts a dramatic slowing of housing construction across Canada as recently tightened mortgage lending criteria, which reduced amortisations on CMHC-guaranteed mortgages to 25 years from 30 year, start to bite. These changes, which have reduced first home buyer demand in particular, are forecast to cause up to 150,000 of job losses.
Canada’s housing market is slowing dramatically in terms of both sales and construction, dragging down economic growth and putting some 150,000 jobs at risk in coming years, a mortgage industry association warns in its spring report…
Since [the new mortgage rules were implemented last summer] home resale activity has fallen 8.3% and housing starts by 15%. They are likely to fall further, the report says.
CAAMP predicts that by mid-2015, national home construction will fall to about 150,000 units annually, or about 25-30% less than the 205,000 average for 2011-2012. That will result in about 150,000 fewer construction and indirect jobs, such as in the real estate sector and support industries…
“Until now, housing has played a major role in the recovery from the 2008/09 recession… That economic driver is disappearing as we see housing related jobs dry up and consumer confidence erode at a time when the national recovery is struggling to pick up steam.”
The above video interview with CAAMP’s chief economist, Will Dunning, on the Business News Network, highlights the growing concerns within the Canadian housing/mortgage industry.
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Another thing working against Canada’s housing market is that there isn’t much the central bank can do to avoid the slide. Mortgage rates are already near record lows, with little room to move lower (see next chart).
And yet Canadian mortgage growth is falling (see next chart), which is now manifesting in the slowdown in sales and construction activity, as well as sliding house prices:
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It looks like Canada might finally pay for its decade of decadence.
Leith van Onselen is Chief Economist at the MB Fund and MB Super. He is also a co-founder of MacroBusiness.
Leith has previously worked at the Australian Treasury, Victorian Treasury and Goldman Sachs.
