Fears of Canadian Housing Market Slump Overblown
Fears of Canadian Housing Market Slump Overblown
The 30% drop in seasonally-adjusted monthly housing resales in the first seven months of this year has raised fears that a full-blown slump is in the works for Canada. Last year’s spectacular rally, which not only contrasted sharply to the moribund state of housing in most other parts of the developed world but also heated up conditions to even greater levels than those which prevailed in 2007, are perceived by some as evidence of a bubble threatening to burst anytime.
- The sharp decline in housing resale activity since the beginning of the year has ignited fears that the Canadian market has started to crash.
- In large part, such concerns are based on the belief that the spectacular run-up in prices in the past several years reflected bubble-like conditions, which will inevitably end up in a gut-wrenching correction.
- While we agree that housing prices are currently historically elevated, we do not believe that any major slump will necessarily ensue.
- Housing affordability – the best indicator of underlying market tensions, in our view – has deteriorated in recent quarters but remains much better than it was in the late 1980s and early 1990s when bubbles clearly caused the Canadian market to meltdown in the years that followed.
- The further expected modest erosion of affordability in the period ahead is seen to cool housing demand not deep-freeze it.
Home prices, overall, are generally expected to stay above water in Canada, although there are some local markets, such as such as Vancouver and, possibly, Montreal, where very poor affordability could well lead to declines to correct these imbalances.
Such fears are rooted in the significant price gains since 2001 that far exceeded household income growth in Canada. Home prices nearly doubled nationally during that period, while disposable income grew by less than 50%. The ease with which the Canadian market recovered the losses incurred during the (short-lived) downturn of the latter part of 2008 and early 2009 and with which prices surpassed previous record highs during the rally only feed the notion that the Canadian market is being driven by irrational behaviour.
However, we find little compelling evidence of irrationality or bubbles in the overall Canadian market relative to historical patterns.
One in five Calgary companies plan on hiring
One in five Calgary companies plan on hiring: Economists
Calgary job seekers could close the year on a happier note, with one in five Calgary companies planning to hire within the next three months, a sign the city’s economy is stabilizing after a rocky patch, economists say.
“It’s all very positive news,” said Randy Upright, CEO of Manpower’s Alberta region, adding only four per cent of employers expect to cut back their labour force between October and December.
He added that the numbers show a “more conservative kind of survey” than those seen during boom times.
As well, the number looking to add employees is double what it was in the same period last year, when only 11 per cent were in that position.
And it’s an eight percentage point increase over July to September when 15 per cent planned to hire.
With 71 per cent anticipating the status quo until the end of the year, “there’s a continuing sense of stability overall,” said Upright. “That’s what we’re really happy about.”
In 2009, hiring intentions in Calgary sank to their lowest levels in 15 years.
Todd Hirsch, senior economist with ATB Financial, speaking generally about Calgary’s economy, said stable is good after a couple years of volatility.
“The phrase I’ve been using lately is sunny with a chance of showers,” he said to describe the situation in the city.
With some uncertainty still in the air, Hirsch said employers aren’t rushing to add staff they may have to lay off should things take a turn.
Citing fluctuating oil prices and the low price of natural gas, “it’s enough to rattle people,” he said.
Manpower Canada’s employment outlook survey released today, which includes 1,900 employers across the country, found 23 per cent in Calgary are looking to hire, compared with 21 per cent nationally. Across Canada, the number planning to cut jobs was seven per cent, with both figures are better than during the same period last year.
Manpower said it’s the strongest national outlook in almost two years.
A Robert Half International employment report, which canvassed more than 1,000 executives in Canada about their hiring at the professional level, found a net 10 per cent plan to add jobs, a two percentage point increase over the previous three months.
Calgary has seen its unemployment rate start to decline, hitting 6.9 per cent in July, down from 7.5 per cent in June.
Hirsch said it looks worse than it is because Calgarians have been used to a rate of about three per cent.
However, while the province added 9,000 jobs in July, on top of 5,700 added in June, all those were attributed to the creation of part-time positions and in both months there was a decrease in full-time jobs.
In July, Canada added 129,700 part-time jobs but lost 139,000 full-time positions.
According to the Manpower Canada survey, the most optimism for job creation was seen in the mining and manufacturing-durable goods sectors, the best in a decade.
On Friday, the United States reported job gains of 67,000 in the private sector, which was better than expected, with the economy losing 54,000 jobs overall — better than the 120,000 predicted.