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Soft Landing still most likely outcome

Soft Landing for Ontario Real Estate

Hoping for a soft landing in the market?

Genworth Canada recently held a half-day workshop for Realtors, mortgage brokers and other industry watchers. It was webcast across the entire country from the Mississauga broadcast location. Among the speakers was keynote speaker, Craig Alexander, who is chief economist at TD Group.  He talked about the present state of the Canadian economy, and more particularly, the real estate market. Genworth also presented their annual Home Ownership Study – which surveys potential and actual home buyers, and examines the financial health and behaviour of Canadians.

Survey results were discussed by a panel including Royal Lepage CEO Phil Soper, Stuart Levings (COO of Genworth Canada), Henrietta Ross, CEO of Canadian Association of Credit Couselling Services and David McDonald of Environics Research Group.  Another panel that looked at regulatory issues included Get A Better Mortgage Inc. principal Mark Tamburro and Paul Belanger, co-chair of the Financial Services Regulatory Group at Blakes LLP.

The following provides a summary of key messsages from the presentations and panel discussions:

  • Canada has out-performed the U.S. during the economic recovery.
  • The Canadian economy is expected to deliver moderate economic growth in 2013 and 2014.
  • A soft landing is expected in Canadian real estate.  Home sales have fallen in response to the tightening of mortgage insurance rules and slower economic growth, but there has not been a price correction (outside of Vancouver). This reflects the fact that listings have declined in tandem with sales.  The result is balanced market conditions in most Canadian cities.
  • The effects of the recent tightening of mortgage insurance rules will abate with time. There is no catalyst for a major correction in real estate, as Canada’s labour market will remain healthy and interest rates will remain low.
  • Consumers have reduced their willingness to take on additional debt. This will constrain household spending, but it is a healthy outcome and spending will likely continue to advance at roughly the pace of income growth.
  • TD Bank does not expect interest rates to rise until late 2014 to early 2015. The exception would be if the housing market rebounds and it leads to acceleration in debt growth, in which case the Bank of Canada could be forced to raise interest rates sooner or the government could tighten mortgage lending rules further.  An option that does not get attention, but could be prudent, is a change in the qualifying interest rate.
  • People are putting more money down, but people are also buying smaller homes. Both are indications that people are opting for more affordable mortgages.
  • There is still a need for increased financial literacy among Canadians (27 per cent do not even know what their credit rating is).
  • The Canadian government was concerned with a rising debt-to-income ratio and changes to mortgage regulations in the past few years were a quick way to address the issue.
  • This is likely not the end of changes in the mortgage industry; much depends on how changes made to date continue to affect the industry.