Housing forecast for 2007 looking good
Reprinted from the Condo Guide
The first housing forecasts for 2007 are starting to come forward and it would appear that the housing market juggernaut should continue next year.
According to the Clayton research housing forecast, national housing starts (a start is recorded when the footings for a home or condo project are poured) should be higher this year than last.
While starts are expected to moderate in 2007, they should remain above the 200,000 unit mark for the sixth consecutive year.
Since most builders do not start construction until a unit is sold, housing starts are a good proxy for the health of the market, albeit a lagging indicator.
Clayton’s rosy forecast is based on “surprisingly robust” employment growth, a positive outlook for personal disposable income offsetting some of the pressure on affordability from increases in mortgage rates and house prices, plus the Bank of Canada appearing ready to bring interest rate increases to an end (see “Dodging the bullet” below).
Clayton does cite some cautionary factors, including the impact of a slowing U.S. housing market on the broader U.S. economy. “The threat of an economic slowdown for our largest export market raises the risk of slower economic growth in Canada,” notes Clayton.
Clayton’s other cautionary note relates more to Western Canada, namely Alberta and B.C., where supply constraints in terms of shortages of land, labour and/or materials, have resulted in dramatic house price increases which could slow those markets down.
Overall, Clayton foresees an approximate 6% decline in housing starts in 2007, which, considering the record level comparison point, is really quite a modest reduction. By historical standards, this projection of 214,500 housing starts nationally in 2007 amounts to an excellent year ahead.
Economists agreeing?
There are a lot of jokes about two economists agreeing, but housing economist Will Dunning’s latest musings, contained in his most recent Toronto housing and employment outlook, reveal remarkable concurrence with Clayton.
Dunning prefaces his analysis with the comment that “forecasts have been raised as the employment data suggests that the Toronto economy is holding steady in spite of the Canadian dollar,” (a reference to the fact that since we trade so much with the U.S., a rising dollar should reduce our comparative advantage).
Dunning’s GTA-specific analysis suggests that housing sales over the next four years (including 2006) will range between 35,000 and 40,000 units, with housing starts obviously falling within a similar, although slightly higher range due to the lag effect between housing sales and housing starts.
If Dunning is right, that would be four more very excellent years for the new-housing market in the Greater Toronto Area.
Dodging the bullet
According to the August edition of the Canadian housing industry economic update, Bank of Canada governor David Dodge made the right decision with his June 11 decision not to increase interest rates.
“This is a very important development for Canada’s new-home builders and renovators,” states newsletter author Dr. Peter Andersen, writing to members of the Canadian Home Builders’ Association. “It now looks like we will have rate stability through the rest of the 2006 selling season.”
Commenting on the same issue, Will Dunning states, “looking forward, it appears that interest rates may not change much in the near term as the Bank of Canada indicates that it is prepared to take a wait-and-see approach.”
For those of you keeping track, that’s three economists agreeing on the interest rate factor.
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