The CMHC is revising it’s forecast for housing starts in the slightly upward direction thanks to the US decision to keep interest rates at rock bottom levels:
The outlook runs contrary to a report in July from TD Economics, which projected that Canada’s housing market was poised to correct over the next two calendar years, with resale activity falling 15.2 per cent and average prices dropping 10.2 per cent.
“A combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first-time home buyers are expected to be the chief culprits behind the slowdown,” said the report, prepared by deputy chief economist Derek Burleton and economist Sonya Gulati.
Earlier this summer, BMO Capital Markets warned that the Canadian market could suffer a price setback if there is a rapid rise in interest rates due to higher inflation, an increase in unemployment because of a weak U.S. economy or a slowing in foreign investment.
CMHC, however, projects that despite a slowing in the second half, average resale prices will deliver an overall increase in 2011, and continue to rise, albeit at a more modest pace, in 2012.
Laberge said the key reason for CHMC’s positive outlook is the call later in the summer from U.S. Federal Reserve chairman for interest rates to remain at rock-bottom rates into 2013.
As a result, he said, “We expect mortgage rates will be flat this year and to start increasing only later in 2012.”
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