CREA Cuts Forecasts

Mortgage Basics

The Canadian Real Estate Association (CREA) cut its home sales forecasts for 2012 and 2013 and lowered its national average price predictions in a report issued earlier today.

The new forecast eliminates 8,900 transactions from the previous 2012 forecast, but still calls for growth of 1.9% over 2011.  Of bigger concern is the 1.9% reduction in transactions forecast for 2013 bringing us back two years to the 2011 activity of 457,800 units.

The association makes no bones about blaming the reduction on tighter mortgage rules imposed by the Department of Finance in July.

“The broadly based decline in August sales activity suggests that some buyers may no longer qualify for a mortgage now that amortization periods for high ratio mortgages have been shortened,” said Gregory Klump, CREA’s chief economist.

“As the lynchpin of the housing market, lower first-time buying activity will have downstream effects over the rest of the market.”

The new forecast amounts to 3 years of no growth purchase transactions and housing values.  CREA now predicts that national housing values will rise 0.60% in 2012 and decrease 0.10% in 2013.

The Canadian economy should be driving the housing market but in recent years, just the opposite has been happening.  Increasing values have created wealthier Canadians and the growing number of transactions has driven real estate related industries.  These positive effects help drive consumer spending and buoy the economy.

While flatter numbers will drive the government’s objective of decreasing Canadian debt levels it will also lower net worth numbers and eliminate jobs.  Given the weak economic climate, now hardly seems the time to put the brakes on real estate.

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