HOUSING SLOWDOWN MAY MEAN JOB LOSSES
But insiders, brokers disagree on severity of downturn
In Vancouver and B. C., it’s not a housing crash that we’re seeing, it’s a mild correction.
HELMUT PASTRICK CENTRAL 1 CREDIT UNION CHIEF ECONOMIST
Almost a year after the federal government’s latest tightening of the rules for insured mortgages, the association that represents mortgage brokers has come out with a dire assessment of the effect of those changes.
Canada’s housing market is slowing dramatically in terms of both sales and construction, dragging down economic growth and putting 150,000 jobs at risk in coming years.
In Vancouver, the slowdown could mean the loss of 7,500 construction- related jobs and a 30- per- cent drop in housing starts from 2011 to about 13,000 a year, said the Canadian Association of Accredited Mortgage Professionals chief economist Will Dunning.
However, while there is agreement that the new mortgage rules limiting the amortization period for insured mortgages to 25 years from 30 have had an impact on the housing market, there is still disagreement as to how much.
The federal government has tightened mortgage rules several times in recent years, citing concern about household debt.
Dunning said last summer’s action by Finance Minister Jim Flaherty and the bank regulator to shorten the maximum amortization on an insured mortgage to 25 years from 30 years affected the most people.
Since that most recent change, home resale activity has fallen 8.3 per cent and housing starts by 15 per cent across the country. They are likely to fall further, the report says.
“But I don’t think it’s too far gone yet,” Dunning said. “I’m suggesting that the minister of finance should look at this research to draw some conclusions about whether his policy has gone too far.”
Last week, the Office of Superintendent of Financial Institutions gave notice it is looking into whether it needs to lower the amortization period to 25 years for homeowners with over 20 per cent equity, so- called conventional mortgages that do not require governmentbacked insurance.
Central 1 Credit Union chief economist Helmut Pastrick agrees that the housing market will continue to tail off, but his own forecasts don’t suggest as steep a drop as CAAMP is predicting.
“It has been declining since 2011 when we saw the third round of mortgage insurance tightening,” Pastrick said.
Pastrick said he expects the housing market to stabilize over the next 12 months, although that mark could be pushed further if the government takes additional steps to tighten mortgage rules or advanced if the government loosens the rules.
“In Vancouver and B. C., it’s not a housing crash that we’re seeing, it’s a mild correction,” Pastrick said. “In terms of prices, it will have a few more months to run before prices begin to stabilize. First we need to see sales stabilize and then prices will follow three to six months later.”
Anne McMullin, president and CEO of the Urban Development Institute, said her organization recognizes the need for the mortgage- rule changes that have already been made, but would not like to see any further tightening.
“Certainly I think the tightening of the mortgage rules has had an impact, but the Vancouver market still remains stable,” McMullin said. “We’ve been growing steadily since 2009.”
She said the Metro Vancouver real estate industry is very sophisticated in its ability to work within the market and maintain a steady, stable industry even if the economy slows.
Tsur Somerville, director of the centre for urban economics and real estate, Sauder School of Business at the University of B. C., said it’s problematic to tie all of the drop in sales to the tightening of the mortgage rules because the Canadian economy is slowing at the same time and it’s difficult to separate the effects of one from the other.
The latest data on housing starts from Canada Mortgage and Housing Corp. shows that housing starts are down six per cent in Metro Vancouver from March to April, both in trending and seasonally adjusted numbers. The decrease was most severe in apartment construction, while singledetached home starts increased over the past six months. CMHC reports show April housing starts were trending at 16,369 annually and predict 19,300 starts for 2014, while the CAAMP report predicts they will drop to 13,000 a year by mid- 2015.
“Until now, housing has played a major role in the recovery from the 2008- 09 recession,” Dunning said. “That economic driver is disappearing as we see housing- related jobs dry up and consumer confidence erode at a time when the national recovery is struggling to pick up steam.”
CAAMP represents mortgage brokers, who are dependent on a robust housing market for their living. Other non- constructionrelated jobs and sectors that will be affected by a slowdown include sales, financing, legal services, moving, renovations and repairs, sales of furniture and appliances and landscaping, the report notes.
The Canadian Association of Accredited Mortgage Professionals based its estimates and projections on a number of sources, including raw data and an online survey of about 2,000 homeowners and renters that was conducted in April by Maritz.