Despite a slowing U.S. economy and decreasing housing affordability, especially in Western Canada, the Canadian housing industry should avoid a collapse in 2008, Scotiabank (TSX: BNS) economists say.
Given present conditions and with the Canadian economy remaining "good, but not great," real estate construction, sales and price gains should moderate this year, not fall off, said Aron Gampel, deputy chief economist with Scotia Economics.
However, what could affect the country's housing markets adversely, said Gampel, "is if there is a bigger than expected economic slowdown in Canada that would affect everyone universally."
Canadians probably will not know for another six to nine months how things will shake out, Gampel said during Scotiabank's real estate outlook forum, held last week in Toronto.
Adrienne Warren, senior economist at the bank, told the forum that 2008 "will be a good, not a great year" for Canadian real estate residential markets.
"We're probably looking at little bit better balanced conditions because of an increase in supply coming onto the market," she said.
"That suggests that price appreciation will moderate, maybe a few more buying opportunities, most likely fewer bidding wars out there for the potential buyer that still wants to get into the market."
She sees strength in the housing market in Western Canada, "but there are pockets across the country, such as a lot of smaller urban areas that are more affordable."
Some of the bigger cities, she said, "have been priced out at this point because of issues of affordability. But, in general, the West still will be one of the hottest markets in the country."
Warren also said there will likely be "a shift towards non-residential construction over residential construction" as the more balanced market takes shape towards 2009.
Nevertheless, there "will still be solid activity throughout 2008," she said.
Looking at the economy and the housing industry environment over the next few months, the bank sees economic growth of about two per cent through 2008, generally in line with the International Monetary Fund's recently released forecast of 1.8 per cent.
"Interest rates are coming down, improving the climate for mortgage lenders and homebuyers. The Bank of Canada is poised to lower interest rates next week," said Gampel.
A major factor, though, facing Canada in 2008 will be "a deterioration in trade with the U.S.," Canada's largest trading partner, as the U.S. economy heads south, he said.
This should be offset, however, by the global economy, which "still has a lot of power in it. Emerging economies will provide a solid growth offset to the U.S.," especially with the growing demand for Canadian natural resources in China and elsewhere, Gampel predicted.
"Canada has a variety of economic weapons at its disposal, and these weapons right now are helping us to protect our growth," he said.
The Canadian economy, however, is slowing, and Canadians will likely become more cautious spenders in the months ahead when it comes to housing and other large items.
But "we still have job growth in this country, we have interest rates that are coming down, we've had a lot of fiscal stimulus," all of which should help support the housing market, said Gampel.
As for the sub-prime mortgage issue in the U.S., it should not hurt Canada too much, said Gampel.
So far, he said, the damage has been limited to dips in pension funds and other equity investments during market ups and downs.
Through 2008 and into 2009, said Warren, the key factors in the real estate markets will be "decreasing affordability, especially for first-time buyers, and some softening in domestic economic conditions."
