Housing sector defies forecasts again

Seemingly insatiable demand among Canadian home buyers has led an industry group to raise its 2007 sales target, even as the subprime mortgage crisis and housing woes ripple through the U.S. economy.

Sales of existing homes are expected to surge to a record 523,100 units this year, an 8.1-per-cent jump from last year, the Canadian Real Estate Association said in a new residential forecast. That is up from a previous target of 500,995 units and 3.6-per-cent growth.

In its original forecast, issued in February, CREA had predicted sales would ease 1.6 per cent from 2006, pressured by higher prices and rising mortgage costs. It revised that outlook in May, calling for higher sales.

Now, phenomenally strong second-quarter sales have prompted an even more bullish outlook for the remainder of the year. "We had anticipated that the market would cool in the second quarter, but instead of cooling, it went further to a boil," said Gregory Klump, chief economist with the Ottawa-based group.

A vastly different picture is unfolding in the United States, where the collapse of the subprime mortgage market has exacerbated an already severe downturn in the housing market, leading to widespread fears about the overall health of the U.S. economy and triggering a global credit crunch that has rattled financial markets.

Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc., said the fundamentals of Canada's housing market are healthier than south of the border, because mortgages rates here have not shifted upward as dramatically.

There is also still considerable pent-up demand for housing in Canada - built during the downturn in the 1990s - that has not been satisfied, he added.

Mr. Porter said any impact the U.S. crisis may have on Canada will likely be modest. "We could get a headline chill in consumer confidence, whether through the turmoil in financial markets or the fact that people are reading on a daily basis about [it]."

The interest rate and employment situations in Canada are both still favourable to housing, Mr. Porter said. "The U.S. conditions might keep the Bank of Canada from raising rates, which would ironically keep the housing market going longer and stronger than it otherwise would have."

Although 2007 sales are proving brisker than expected, CREA still expects Canada's resale market will ease in 2008, dipping 2 per cent, as rising house prices eat into affordability. CREA had previously called for sales activity to cool 2.8 per cent in 2008.

According to the CREA forecast, 2007 sales will be strongest in Saskatchewan, surging 33.7 per cent from last year, and weakest in British Columbia, rising 4.6 per cent.

Resale housing prices are also expected to reach new highs this year and in 2008, although the pace of the price increases will ease next year.

The average national price is seen rising 10.4 per cent to $305,900 this year, and another 5.5 per cent to $322,700 in 2008.

(prepared by Roma Luciw/Globe and Mail)

CANADIAN HOUSING SALE FORECASTS RISE

MLS residential unit sales and average price forecast:

Unit sales forecast 2007
2007 annual percentage change
Unit sales forecast 2008
2008 annual percentage change
2007 residential average price forecast
2008 residentail average price forecast

Canada
523,100
8.1%
512,705
-2.0%
$305,900
$322,700

British Columbia
101,080
4.6
99,415
-1.6
$429,700
$454,200

Alberta
78,550
5.6
75,030
-4.5
$355,600
$379,00

Saskatchewan
12,220
33.7
12,070
-1.2
$155,000
$163,600

Manitoba
13,870
6.5
13,730
-1.0
$167,100
$180,000

Ontario
210,700
8.2
207,530
-1.5
$302,300
$316,700

Quebec
80,700
11.3
79,445
-1.6
$207,100
$219,700

New Brunswick
8,250
15.8
8,100
-1.8
$136,300
$142,100

Nova Scotia
11,650
10.1
11,435
-1.8
$184,800
$198,600

Prince Edward Island
1,700
13.9
1,605
-5.6
$132,400
$139,200

Newfoundland/Lab.
3,920
10.8
3,845
-1.9
$144,000
$149,900

CANADIAN REAL ESTATE ASSOCIATION