Housing correction unlikely: Conference Board

OTTAWA — Canada's cooling housing market continues to put the brakes to residential building plans in Canada, although the slowing trend in no way signals a U.S.-style housing free fall, the Conference Board said Wednesday.

The Ottawa-based think-tank weighed in on the housing-bubble debate on Wednesday, after Statistics Canada released data showing the value of building permits for residential construction fell for the fourth straight month in July.

The 2.4 per cent decline, to a monthly rate of $3.5 billion, follows similar data showing housing starts and resale activity in Canada declining for months now, along with reports arguing that Canada's housing market is a bubble waiting to burst.

Not so, the Conference Board of Canada argued in a report Wednesday.

"The housing market has lost its lustre. No doubt about it," said Mario Lefebvre, the centre's director for municipal studies.

"However, this will not lead to a free fall for Canada's housing market. This country will not experience home-price declines to the tune of what we have witnessed in the United States over the past few years."

Yet the report comes on the same day that the Bank of Canada, whose record low rates have been a prime force behind the country's housing boom, raised its key lending rate to one per cent and left some observers convinced it will hike rates yet again this year.

Signs of a slowdown were unmistakable in Statistics Canada's report. It showed weakness in residential permits was much more broadly based than in the nonresidential sector, with declines registered in six of 10 provinces, said Scotia Capital economist Derek Holt.

Still, he added, the report "is directionally in line with expectations for softer housing markets," and that the number of residential permits "nonetheless remains 31 per cent higher than a year ago."

Lefebvre conceded in his report that the next few months will be weak, thanks to a slowing economy, the arrival of the harmonized sales tax in Ontario and B.C., declining consumer confidence, European debt worries and a jobless recovery in the U.S.

At the same time, home prices now average more than $300,000 in Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal — far above the $150,000 to $200,000 historical average — according to a recent report from the Centre for Policy Alternatives which said those markets have all the hallmarks of an "accident waiting to happen."

But Lefebvre argued the country will only see a pause in home-price growth, with some possible small declines in a few markets.

Levebrve said prices have held up despite declining resales because those sales "are coming off incredibly high levels in most markets — levels that were simply not sustainable."

The board said it does expect housing starts to decline. But like the resale market, this will mark a return to more normal levels rather than a collapse in the market, which, in the case of the U.S., was the result of laws that allow mortgage deductibility for tax purposes and the "ring-fencing" of mortgage debt, which prevents lenders from pursuing other assets of a mortgage holder, the board said.