New report predicts soft landing for housing market

One of Canada’s most influential not-for-profit research organizations has published its annual Long-Term Economic Forecast, which includes its predictions for the housing market for the next few years.

“In the near term, we think Canada’s housing market is poised to come in for a soft landing,” the Conference Board of Canada stated in its comprehensive, 126-page document.

“Ongoing population growth and strong household formation have underpinned potential demand, and ongoing (albeit modest) employment growth and low interest rates have turned homebuyer interest into sales.”

The organization acknowledged that certain housing pockets – such as Toronto’s condo market – pose a certain threat to the economy, but it believes that the risk is manageable, with starts already cooling and mortgage rates expected to spike.

“Even this hazard is reduced by sustained housing demand and a solid local economy,” the organization states in the report.

“Over the next few years, rising interest rates will cool housing starts, despite good household formation.”

As for housing prices, the Conference Board has predicted one or two years of slight price declines. However, modest declines should be viewed in context: prices have spiked nearly 70 per cent from 2003 to 2013.

With interest rates expected to eventually rise and markets starting to cool, the Conference Board acknowledged that prudent handling of finances by the majority of Canadians will help the country avoid a similar fate to that of the U.S.'s housing market in the mid-late 2000s.

“Such a flood would indeed prompt a significant housing market correction, as it did in the United States after the financial crisis struck in 2007,” the organization stated.

“One reason why Canada will avoid this fate is that Canadians seem to be behaving rationally, taking advantage of low interest rates to pay off their mortgages faster, so that, upon renewal, there is less debt to service and an individual’s carrying costs will not, accordingly, spike.”

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