Canada's Housing Market: A Q&A

Cameron Muir, Chief Economist of the British Columbia Real Estate Association, on the downturn in the U.S. housing market and what it means for Canada.

New home sales in the U.S. plummeted in July to their lowest levels since 1963. And, despite low mortgage rates, the number of single-family homes changing hands dropped 27 per cent from the previous month. The Mark spoke with Cameron Muir, Chief Economist of the British Columbia Real Estate Association, to see if the U.S. numbers will have any affect on the Canadian housing market.

The Mark (TM): What do these U.S. numbers mean for Canada?

Cameron Muir (CM): “Well it has bearing on us in so far as the U.S. consumer being such a large part of the overall U.S. economy and hence on the demand for Canadian exports. In terms of our housing markets, the two markets themselves are not very aligned if you will. In Canada we didn’t have the kind of lax mortgage lending practices that led to the sub-prime meltdown in the U.S.

Canada’s mortgage lending criteria is relatively stodgy compared to what we’ve seen in the U.S. We didn’t see that same kind of household financial disaster. We’re still seeing the fallout of that (in the U.S.), and it looks like recovery is still some time away.”

TM: Have you seen a slowdown in Canada?

CM: “Typically August is a slower month, but we seasonally adjust the numbers to account for that. In Canada home sales are down 30 per cent from last December, and that’s adjusted to seasonality, so we’ve seen a constant lowering of overall consumer demand across Canada, and in the major markets as well. We’re down from a little over 45,000 units, seasonally adjusted, in December 2009, to about 31,500 last month.”

TM: So what’s behind this drop?

CM: “We saw a lot of advanced purchases going on towards the end of last year. There were people getting into the market sooner rather than waiting to take advantage of rock bottom interest rates as well as perhaps trying to get in before the tightening of credit conditions for low-equity homebuyers that was introduced by the federal government in April. Then of course in B.C. and Ontario there was the looming HST in July which certainly provided some incentive for buyers to get in the market sooner.

So what I think we’re seeing over the summer months is a lull in the overall marketplace as many people already got into the market. Demand will likely pick up a bit in the fall.”

TM: Some real estate agents talk about the market being a self-fulfilling prophecy. If people think the market is down, it will be down. What do you think about that notion?

CM: “When we look at real estate markets it’s not really the sales levels that keep buyers away, or sellers for that matter, it’s the perception of prices. So if there’s a perception in the marketplace that prices are going to be lower in two months than they are today then that certainly is an incentive for people to sit on the sidelines and wait.”

TM: So what should people think when they see stories about the housing slump in the U.S.?

CM: “When we look at our housing market here (compared to the U.S.) it’s a little bit like apples and oranges. Most Canadian homeowners are on pretty solid financial footing. We just experienced in the last half of 2009 when Canadian households were so much better off than their American counterparts that there was a very strong buying spree that went on.”