Declining employment numbers brought on in part by federal government downsizing is dragging down Ottawa’s housing market, according to a new report from the Conference Board of Canada.
“The resale housing market in Ottawa is sluggish and total starts remain soft by historical standards, but the market remains balanced between sellers and buyers,” the Conference Board said in a press release.
According to the report, the sales to new listings ratio in Ottawa has dropped “from over 70 per cent in 2009 and 2010 to about 48 per cent last year.”
The Conference Board blames that on falling employment rates, which are being driven by what it describes as “weak” economic growth and federal government downsizing.
When it comes to the resale market, the Conference Board says that sales were “largely flat last year.”
For new houses, the Conference Board found that “urban intensification plans are lifting the share of multi-family starts.”
The Conference Board said that “the pace of both single-detached and multiple starts has recently edged up, but total starts remain soft by historical standards.”
Nationally, the report sought to reassure those nervous about the market that fears of a potential housing crash are overblown.
The Conference Board isn't buying the notion that Canada's housing market will suddenly crumble, saying the most likely outlook is for a modest decline nationally and in some specific markets.
The Ottawa-based think-tank argues in a comprehensive new look at real estate in Canada that the conditions for a crash simply don't exist, despite numerous reports that the market is overbuilt and overvalued.
Rather, the report argues that with the possible exception of Toronto, housing starts the past three years have been roughly in line with the 20-year average.
Even in Toronto, there is only a “borderline” case that it could be overbuilt.
“At this point in the housing cycle, there is a risk that Canadian housing prices in some market segments are due for a modest correction,” the report stated.
“Nevertheless, we believe that continued population growth, additional employment gains and modest mortgage rate increases will limit potential price declines in 2014 and 2015.”
There is a case for more dramatic price adjustment further out if higher mortgage rates start crimping affordability, the Conference Board says, but even then it is likely to be a soft rather than a hard landing.
In recent years, some economists and international organizations such as the OECD, the IMF, Deutsche Bank and The Economist magazine have described Canada's housing market in stark terms, characterizing it as among the priciest in the world based on historical averages and other metrics.
But the consensus of economists within Canada has tended to be more subdued. Last week, the Canadian Real Estate Association also predicted a slowdown as mortgage rates start edging up later in the year, but it still saw the market overall growing in 2014 and 2015.
The Conference Board says fears of a housing bubble about to burst in Canada are exaggerated.
It said some of the evidence cited by correction hawks, including comparing home prices as a multiple of rental costs, don't take into account historically-low mortgage rates that keeps affordability steady. Citing Toronto, it notes that in 2013 mortgage payments consumed less than 20 per cent of average household income, the same as in 1993.
“Mortgage costs, not just house prices, are the principal deciding factor for potential homebuyers,” said Robin Wiebe, the think-tank's senior economist.
Even when mortgage rates do start rising, the Conference Board believes it will happen gradually and over an extended period. For instance, it forecasts rates with only a gain of 200 basis points – two percentage points – by 2017 or 2018.
But at current low rates, the typical homeowner on a posted five-year rate will have paid down $42,104 principal on a $100,000 in mortgage debt, so affordability won't be seriously impacted once it comes time to renew at a higher rate.
The Conference Board provides an outlook on five other major cities:
Vancouver: Moved back into balance last spring. Recent price gains will give way to slower advances in 2014.
Calgary: A approaching sellers' conditions, noting strong price gains last year.
Edmonton: Balanced, with brisk resale and price growth activity last year.
Toronto: Balanced with healthy price growth. A major correction is difficult to see given solid employment and population growth.
Montreal: Flirting with buyer's market conditions with sales and average prices having dropped somewhat last year.
–With files from The Canadian Press