Housing prices won’t freefall: Laurentian

July 25, 2012 | Last updated on July 25, 2012
2 min read

Following the release of BoC’s gloomy Monetary Policy Report last week, Laurentian Bank and its research team downgraded their provincial and national growth forecasts for Canada in 2012.

It expects the country to grow only 2% over the next two years, and has released a new edition of the Provincial Monitor, a report highlighting the key factors influencing Canada’s economic performance.

The report discusses the current housing market dynamics within five major metropolitan markets: Montreal, Toronto, Calgary, Edmonton and Vancouver.

Though prices are already skyrocketing across the country, the bank suggests values will continue to peak in Calgary and Edmonton due to high demand and a growing labour force.

The same goes for Toronto, with its plethora of condo projects being developed all over the city. Nonetheless, “prices on the resale market are expected to slow down in 2013 without entering negative territory.”

Montreal and Vancouver markets, on the other hand, have begun to cool off. The report says sustained demographic growth will prevent any serious price drops in Vancouver, but that Montreal will face the toughest challenges. The city’s prices will plunge quickly due to weak demographic growth, with its large immigrant population is doing little to absorb the heavy supply of condos about to hit the market.

The recent change in mortgage rules will help soften the blow, however.

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“The recent tightening of mortgage rules is expected to cool down the housing market by restraining demand,” says the report. “In addition, these restrictions should prevent a further deterioration in indebtedness. By the time the interest rates increase, households should be in a better position to face it.”

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It estimates a rate hike by the Bank of Canada is still in the cards, but won’t occur until mid-2013 at the earliest.

Overall, the bank says the real estate market is impacted by several factors including income levels, employment rates and interest rates. Since “none of these variables are expected to undergo dramatic shocks in the short- to medium-term, housing prices won’t freefall and Canada won’t suffer a recession spurred by a real estate crash.”

Read: Housing: Will the bubble burst?