Canada housing market likely to be lacklustre in 2011 – bank

23 December 2010 20:26  [Source: ICIS news]

TORONTO (ICIS)--Canada’s housing market will likely be lacklustre in 2011 after performing well in 2010, a bank said on Thursday.

Toronto-based Scotiabank said in a report that the country's housing market should benefit from continued low interest rates, which would keep down borrowing costs.

However, this positive factor was offset by only moderate prospects for employment and income growth as government measures to curb deficits were taking effect, the bank said.

“We are neither overtly optimistic nor pessimistic regarding the outlook for 2011," said Scotiabank senior economist Adrienne Warren.

“Overall, we anticipate a fairly lacklustre year for residential housing, with modestly higher sales volumes and flat inflation-adjusted prices - equivalent to a 2% increase in nominal terms,” she said.

“The bigger risk likely awaits 2012 when more significant interest rate increases, combined with record high home prices, will notably strain affordability,” she added.

In 2010, Canada had one of the better performing housing markets among advanced nations, but also one of the most volatile as unusually active demand in winter and spring was followed by an unusually soft summer, the bank said.

Demand rose in the early part of 2010, driven by expectations of rising interest rates that only partially materialised, the looming transition to a new sale tax system in Ontario and British Columbia on 1 July, and planned changes in lending qualifying criteria, it said.

According to the latest data from government housing finance agency Canada Mortgage and Housing Corporation (CMHC), the country's housing starts were running at an annual rate of 187,200 units in November, up from a 167,800 rate in October, with November’s increase caused by the start of a number of major apartment projects in the Toronto area.

As in the US and elsewhere, the chemical industry closely follows the housing and construction market, which is a key downstream consuming sector for a wide variety of chemicals, plastics, fibres, paints, coatings, and resins.

Meanwhile, Canada’s chemical industry was expected to increase its sales by only 2.0% in 2011, after a 14% year-over-year increase in 2010 from 2009.

Canada’s overall economy was expected to grow 2.3% next year, after 3.0% growth in 2010, according to projections by the country’s central bank, the Bank of Canada.

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By: Stefan Baumgarten
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