The housing boom in Canada is over and the red hot markets in Calgary and Edmonton are showing signs of potential for a significant decline, according to a report released by RBC Economics.
The housing boom in Canada is over and the red hot markets in Calgary and Edmonton are showing signs of potential for a significant decline, according to a major Canadian bank.
A report released by RBC Economics states that in 2007 the major markets in Canada delivered a sixth consecutive year of 10 per cent house price increases with housing starts staying above 220,000 units for the fourth year running.
However, the report said April’s housing statistics show that markets are now on a clear cooling path.
“After yet another blockbuster year for Canada’s housing markets in 2007, the much-anticipated housing market slowdown in Canada has arrived,” states the report.
“The delayed arrival of softer housing markets can be partly attributed to recent mortgage innovation that has seeped into the Canadian market during the last two years.”
The slowdown in housing markets was not shared evenly across the country.
“The markets that soared well above their underlying economic fundamentals are the very ones with the most downside potential,” states the report.
“Calgary and Edmonton have moved from chart-toppers to bottom-of-the heap in only a matter of months on a range of key housing market indicators, including house prices and sales.”
A representative of the homebuilders association in Southern Alberta has a unique way of looking at the slowdown.
“There is an analogy I use when talking about the slowdown and current market conditions. We have a vehicle that can produce x number of homes and does x amount of work in a year,” said Deep Shergill the president of the Canadian Homebuilders’ Association — Calgary Region.
“This vehicle has the capacity to go 200 kilometres per hour (km/h), but there is a speed limit of 120 km/h, which means we have 80 km/h surplus capacity to accomplish any speed we want to go. But, we have been producing beyond our capacity at 220 km/h, which is not sustainable.”
In Calgary, the price of homes dropped by 1.6 per cent between April 2007 and April 2008 and the number of sales fell by 31.2 per cent in the same period.
In Edmonton, the price of homes dropped by two per cent from April 2007 to April 2008 and the number of sales fell by 25.4 per cent.
“It seems slow based on where we were last year, but in comparison to 2005, we are still higher,” said Shergill.
In sharp contrast, Saskatchewan experienced a major housing market boom driven by the production of commodities and an influx of migrants.
In Regina, the price of homes jumped by 64.6 per cent between April 2007 and April 2008, and the number of sales increased 14.6 per cent in the same period.
In Saskatoon, the price of homes jumped by 31.2 per cent from April 2007 to April 2008 and the number of sales increased 12.8 per cent.