Here is their report,
Recession weighs on Canadian housing markets
The maelstrom that capsized global financial markets and knocked over the world economy has moved deeper into Canadian territory since last fall, causing damage to the domestic side of Canada’s economy, which, until then, had been resilient even though the external side had been feeling the strains for some time. As a result, overall economic activity began to contract in the fourth quarter of 2008 and the weakness is expected to continue until about mid-year this year.
Facing dimmer employment prospects and already unsettled by the constant flow of dismal financial news globally, Canadian households were struck with a serious case of the blues and became skittish about any major spending plans.
Tighter availability of credit – in part due to the evaporation of the securitization business and the reduction of the presence of foreign financial institutions in the Canadian marketplace – diminished the appetite for big-ticket items in particular. In the case of housing – for most, the biggest ticket item of all – demand was further hampered by generally poor affordability levels, which set the bar too high for an increasing number of Canadian families.
The impact of such poor underpinnings to Canada’s housing markets has been predictable: home sales have dropped; prices have given in to intense downward pressure; and residential construction has slowed substantially. The market correction took hold first and has been most pronounced in the western part of the country, although nearly all regional markets are now feeling the pinch to some degree.
As we head into the all-important spring season, the ongoing cyclical correction will put the entire housing sector to the test. However, while the pain will likely persist for many homeowners and industry participants, there are encouraging signs on the affordability front in light of developments through the fourth quarter of 2008. The sharp deteriorating trend in RBC’s affordability measures from about 2004 to late 2007-early 2008 has reversed in the past year.
At the national level, the RBC measures improved 2.3 to 3.5 percentage points between the final quarters of 2007 and 2008, with markets in Alberta and British Columbia showing more sizable repair (although this largely reflects the extent of the earlier impairment). The improvement can be primarily credited to monetary policy during that period because lower mortgage rates account for the largest portion of the reversal in RBC’s measures in almost all major urban areas in Canada except for cities in Alberta.
Rising family income also contributed positively across the country. Only in Calgary, Edmonton and Vancouver was price a constructive factor in the year-over-year change – although price has played a wider beneficial role in recent more quarters. Higher utilities and property taxes have remained a modest undermining factor.
Going forward, low mortgage rates and persisting downward pressure on housing prices will continue to help repair affordability, but slowing income growth will act as a restraint.
I hope this finds you Happy and Healthy!
All the Best!
A. Mark Argentino
P. Eng. Broker
Specializing in Residential & Investment Real Estate
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