Genworth publishes Metropolitan Housing Outlook report

There are signs of strength in the Canadian economy this year. High prices are boosting investment and production in Canada’s resource sector. Employment was also up sharply in March, and consumer confidence has picked up. 

Combined with continued low interest rates, consumers are expected to keep spending in 2012, albeit at a more moderate pace of growth than in 2011. However, growth in Canada’s econ- omy will be held back by federal and provincial government restraint. 

With few exceptions, the latest round of provincial budgets has been about frugal spending growth coupled with modest tax measures and user fees. Indeed, the government sector is expected to remove 0.3 percentage points from real gross domestic product growth this year and con- tribute very little over the next two years. In total, real GDP is forecast to rise by only 2.3 per cent in 2012, with growth improving to 2.8 per cent for 2013.

High food and gasoline prices pushed headline inflation to above 3 per cent for several months last year. But the inflation rate is expected to average 1.9 per cent this year, as a result of a slowdown in the second half of 2012. Core inflation will also be 1.9 per cent in 2012. Both are then forecast to be just over 2 per cent in 2013. 

With inflation well within its target range and eco- nomic conditions remaining soft, the Bank of Canada should be in a position to hold off on rate hikes for another year, waiting for the U.S. Federal Reserve to increase rates in the United States, and avoiding undue pressure on the Canadian dollar. Already, high commodity prices are expected to keep Canada’s dollar at or above parity over 2012 and 2013.

In early 2012, competition among major banks led to signifi- cant discounts on mortgage rates— some institutions offered a five-year fixed rate of just 2.99 per cent. This has helped sustain housing starts and house price gains across Canada so far this year. But with economic growth still modest, builders are expected to lower new construction levels in the coming months. 

As a result, while housing starts are fore- cast to reach roughly 193,000 units this year, they are expected to drop to 191,500 units for 2013. Three- year and five-year mortgage rates are forecast to fall slightly in 2012, averaging 4 per cent and 5.2 per cent respectively. 

By 2013, three-year rates are expected to begin to move back up, reaching an average of 4.5 per cent. Five-year rates will fall for one more year though, slip- ping to 5.1 per cent in 2013, before rising in 2014 and afterwards, reaching 7.2 per cent in 2016.

Housing markets are generally balanced at the national level. Accordingly, price growth in the new and resale housing markets will be modest this year and next. New home prices are forecast to grow by an average of 2.5 per cent in 2012 and 2013. Existing home price growth is expected to be weaker this year, at 0.9 per cent, rising to 3.2 per cent in 2013.