TORONTO – The global economic turmoil that roiled stock markets around the world in August did little to dampen the Canadian housing market, which continued to show strong gains in sales and prices.
Analysts expressed universal surprise on Thursday that the wildly volatile swings on North American, European and Asian stock markets had little impact on housing, which for many years has been a pillar of economic growth in Canada.
While many analysts had expected a big slump — as Canadians felt poorer because of the stock losses and worried about a weak global economy — sales of resale houses remained steady and prices rose modestly in August.
The figures, released by the body that represents the bulk of Canadian real estate agents, suggest that the housing sector — propped up by low mortgage rates and solid regional economies — will continue to underpin growth in the national economy.
For years, housing has been a big job creator across Canada and has helped boost appliance, furniture, hardware and the retail sectors. Rising prices have also made consumers feel richer and made them more likely to spend money across the economy.
The Canadian Real Estate Association’s August resale housing report showed sales of existing homes maintained the same levels seen in July and increased significantly from the same month the year before.
New listings also remained steady, the association said, adding the number of balanced local real estate markets is currently the highest on record.
Housing prices rose 7.7 per cent year-over-year to $349,916, but have come down from levels posted earlier this year as frothy markets in Toronto and Vancouver began to flatten, the brokers group said.
Scotiabank economist Adrienne Warren said the latest numbers paint a picture of a real estate market returning to a balanced state.
“It’s nice to see prices cooling off a little bit, yet not falling terribly either,” Warren said in a telephone interview. “It’s a fairly ideal market at the moment.”
Analysts say balanced real estate markets help prevent a housing bubble, where prices rise so fast and high that an inevitable plunge occurs later, with potentially devastating effects on the economy.
The collapse of the American housing market since 2008 and the current high number of foreclosures south of the border is a major reason the U.S. economy remains mired in a slump and could easily slip back into recession.
The August markets turmoil — which wiped out tens of billions of dollars in stock values in Canada — did created enough consumer worries to offset some of the benefits of low interest rates for homebuyers.
Robert Kavcic, economist with BMO Capital Markets, said low borrowing rates and strong national job growth helped to fortify the real estate market against broader volatility. But the effect of even those influential factors was beyond his expectations.
“The one thing that continues to surprise us is how steady the Canadian housing market has been,” Kavcic said. “Granted, sales were down a little bit in August, seasonally adjusted, but I would say that’s hardly disappointing given all the other turmoil we’re seeing in financial markets obviously slowing global growth.”
In its monthly report, CREA said actual sales — meaning not seasonally adjusted — came in 15.8 per cent above national levels last year. A total of 324,030 homes traded hands via the association’s Multiple Listing Service system so far this year.
The association’s chief economist Gregory Klump foresees continued strength in the Canadian market, saying low borrowing rates underpinning the current numbers are unlikely to rise in the near future.
In the August resale report, Klump noted that economic turbulence outside Canada has been been keeping interest rates low and will continue to do so.
“Those headwinds will likely persist until, and indeed after, fiscal quagmires in the U.S. and Europe are resolved,” Klump said. “In the meantime, the Bank of Canada will have ample reason to delay raising interest rates further, which is supportive for the Canadian housing market.”
The persistence of global economic woes, however, sounds alarm bells for David Madani of Capital Economics, who believes housing prices could fall by 25 per cent over the next few years.
“If you consider all the negative news that we’ve seen outside of Canada, . . . it seems to be that the economic outlook is deteriorating, and so perhaps I think what we’re seeing in housing markets is a bit at odds with the losses in confidence and uncertainty that seems to be rising,” Madani said.
“It’s a surprise, and I guess the question is, does it sound right?”
Warren predicts housing will remain strong as long as interest rates stay low, but she cautions that prices in the hot Toronto market could come under downward pressure.
The housing market in Calgary, on the other hand, is expected to pick up as oil and natural gas prices which underpin the Alberta economy rebound,
Overall, Warren said, Canadian prices should remain stable. “There’s not really a trigger out there that’s going to cause prices to come down sharply.”