Friday, November 10, 2006

Ottawa Housing Market Cooling

The Ottawa housing market is cooling, and will continue to do so, despite an unexpected pickup in the pace of construction last month.

The pace of construction has been above 200,000 now for a record 41 months in Canada, and will continue have a positive impact on overall economic growth through the final quarter of the year.

The Canadian housing market remains a lot healthier than in the U.S., which is undergoing a slump and where the pace of construction has plunged by nearly 15 %.

But the Canadian housing market will cool, although not anywhere near as much as in the U.S., noting home prices have been outpacing the growth in incomes.

Looking ahead, the lagged effects of previous Bank of Canada (BoC) rate hikes combined with higher home prices are likely to start weighing down on housing through an erosion in affordability, and prices are rising at their fastest pace in 17 years, and significantly faster than disposable incomes.

We should probably expect a gradual slowing of Canada’s housing market over time. After all, higher interest rates must have an eventual effect. But ... it is unrealistic to expect the market to crater any time soon. Builders are still taking out home-building permits at a healthy pace. Yet, there is already evidence the pace of home sales is slowing.

So far this year, total housing construction in Canada is up 1.6 % from a year earlier, with increases in both single and multiple units.


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