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Canada Mortgage and Housing Corp (CMHC) slightly raised its forecast for 2011 housing starts on Monday, citing an improving economy and still-low interest rates.
In a second-quarter housing outlook, the federal housing agency also forecast higher existing home sales than industry group Canadian Real Estate Association (CREA).
It said it expected housing starts to total 179,500 units this year, then climb to 185,300 units in 2012.
In February, CMHC had said it expected 2011 housing starts of 177,600, rising to 183,800 in 2012.
New Canadian government regulations are expected to take the heat off the housing market, once the main source of Canada’s economic growth. The latest changes, aimed at mortgage amortization and refinancing, came into effect in the spring.
“We are expecting new and existing housing markets to fall in line with demographic fundamentals, as changes to mortgage rules take hold,” said Bob Dugan, chief economist for CMHC.
Additionally, Canadian interest rates are expected to stay low for a little while longer despite Monday’s data that showed Canadian growth accelerated to almost 4 percent in the first quarter. Second-quarter growth is expected to be around half of that.
The Bank of Canada will raise interest rates some time in the third quarter, in either July or September, a Reuters survey last week showed.
CMHC predicted existing home sales of 452,100 units this year, which would be 1.16 percent above the 2010 tally of 446,936 units. That is also slightly ahead of CREA, which sees 2011 sales dipping 1.3 percent to 441,100 units from 2010.
In 2012, CMHC sees sales moving up to 461,300 units, also higher than CREA’s forecast of 452,500 units.
Both groups say the recent increase in the average national price reflected strong sales in Vancouver’s resale market. CMHC expects the average price to moderate for the remainder of the year but gave no figure.

The Bank of Canada kept its key interest rate unchanged at 1 percent on Tuesday but for the first time since the recession it said it would eventually have to lift borrowing costs if economic growth continues.

“To the extent that the expansion continues and the current material excess supply in the economy is gradually absorbed, some of the considerable monetary policy stimulus currently in place will be eventually withdrawn, consistent with achieving the 2 percent inflation target,” it stated. “Such reduction would need to be carefully considered.

It did not say whether “eventually” meant the next rate increase would be in July, September or beyond, but its statement was more hawkish than previous ones, which only said that any future hikes “would need to be carefully considered.”

The central bank now sees underlying inflation as only “relatively subdued” rather than “subdued” as in previous statements, but it did not change its overall outlook for inflation. It repeated that the persistent strength of the Canadian dollar “could create even greater headwinds for the Canadian economy” and dampen inflation.

Temporary supply chain disruptions from Japan will sharply restrain growth in the second quarter but this should be unwound afterward, it said.

It said the U.S. economy continued to grow modestly and European growth was maintaining momentum, but it said risks to peripheral European economies had increased.

The central bank became the first in the Group of Seven advanced economies to tighten monetary policy following the global financial crisis, hiking three times from June-September last year but pausing since then due to the weak global recovery.

There has been no consensus among market players on when the bank would resume the tightening cycle but July had recently been ruled out by most as a possibility.

Three of Canada’s largest commercial banks pushed back their rate hike expectations to September from July over the past two weeks.

Thirty-five of 43 forecasters surveyed by Reuters last week predicted the next rate hike would be in the third quarter, implying a move in either July or September, or both.

Overnight index swaps, which trade based on expectations for the key central bank policy rate, showed investors slightly reducing the likelihood of a rate hike in July, but increasing the odds of tightening in September, October and December.

Swaps showed markets see a 94.3 probability the central bank will keep its benchmark rate on hold in July, up from 93.56 percent just before the rate decision.

According to GTA Realtors, April has started off in a promising manner, although sales in the first two weeks have actually dropped by 3% year-over –year. Similarly, there was a drop of 21% year-over-year in the number of new listings.

There is hope that April will finish with a bang, though. “Sales activity was quite strong during the first two weeks of April. If this level of activity is sustained for the remainder of the month, we could see April transactions close to last year’s record result. Positive economic news has kept households confident in their ability to purchase and pay for a home over the long term,” said TREB President Bill Johnston.
While listings and sales numbers have dropped, average prices have increased. According to TREB’s report the average selling price for firm deals reported through the first two weeks of April was $483,165; this signals a 12 % increase over the average price of $430,271 year-over -year.

“The number of homes listed for sale so far in 2011 has been below expectations. Market conditions have tightened, resulting in increased competition between home buyers and accelerating rates of average price growth,” said Jason Mercer, TREB’s Senior Manager of Market Analysis.

There is incentive to jump into the market now, and they are banking on the lure of price appreciation to bring more sellers to market: “The strong rate of price growth reported for the first two weeks of April should entice more households to list their homes for sale. This would result in more balanced market conditions and more moderate rates of price growth,” continued Mercer.

TORONTO, /CNW/ – Housing prices in the Greater Toronto Area have more than doubled since 1998, and two new studies released on March 10^th, 2011 reveal that the provincial and municipal governments have fuelled much of this increase through a myriad of fees, charges and regulatory costs that ultimately are borne by new homebuyers.
The two studies conclude that these government-imposed costs are conspiring to make housing unaffordable for a growing number of families, particularly in the GTA.
A report prepared for the Residential Construction Council of Ontario (RESCON), written by housing expert Will Dunning, estimates that up to 30% of the cost of new housing in the GTA read more

Across Canada, the average home price increased between 3.9 and 4.6 per cent in 2010s fourth quarter compared to 2009. Home values are expected to rise steadily through 2011 as low borrowing costs prompt more sales activity to occur in the first half of the year, according to the Royal LePage House Price Survey and Market Survey Forecast.

It is widely believed mortgage rates will rise in the second half of 2011. Trends in the housing market continue to be driven by the lingering after-effects of the recession, said Phil Soper, president and chief executive of Royal LePage Real Estate Services, in a press release. Canadians realize that interest rates are unsustainably low and that homes will become effectively more expensive when mortgage rates return to normal levels. We will likely see more price appreciation early in 2011 as some buyers complete transactions in advance of anticipated higher borrowing costs.

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Concern over rising consumer debt levels is prompting Ottawa to make three new changes to Canada’s mortgage rules.

Finance Minister Jim Flaherty announced Monday that new federal rules will reduce the maximum amortization period to 30 years from 35 years for government-backed insured mortgages with loan-to-value ratios of more than 80 percent.

Secondly, Ottawa will lower the maximum amount Canadians can borrow in refinancing their mortgages to 85 percent from 90 percent of the value of their homes.

Thirdly, Ottawa will withdraw government insurance backing on lines of credit secured by homes.

Though longer amortization periods reduce monthly payments, they greatly increase the amount of interest paid over the life of the mortgage and make it harder to build up equity. read more