Slowdown a return to 'normal'
September 27, 2008
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Gail Swainson
REAL ESTATE REPORTER
COLLINGWOOD–Canada's six-year housing boom is over and an economic rebound is not expected until 2010, a prominent bank economist has told Ontario home builders.
"I think we have seen the peak of the housing cycle in Canada," said Don Drummond, senior vice-president and chief economist for TD Bank Financial Group.
The nation's housing slowdown – caused by overlapping factors, including the U.S. subprime mortgage meltdown and the recent stock market slide – will lead to a flattening of prices, he said.
Drummond told the Ontario Home Builders' Association annual conference earlier this week that a credit crunch and relatively high borrowing costs, resulting from the stock and housing market turmoil, will likely last "some time."
"The reason for that is that we expect credit will remain quite tight," he added. "We will continue to see growth, but no where near what we have for the last couple of years."
Drummond said he expects Canada's slowing economy to begin a turnaround by the tail end of 2009, with a solid recovery well in place by 2010.
The slowdown – particularly in the western provinces – means the number of jobs in the construction industry will also see a drop.
However, Drummond said there is no reason to expect the kind of economic collapse seen in the early 1990s that led to plummeting house prices and a slow recovery.
"I think that despite the gloomy forecasts, we're not heading into the problems of the early 1990s," he said. "There will be more of a period of sideways economic activity."
Drummond expects Ontario's housing starts to fall back to historically "normal" levels after registering several years of record gains.
Housing starts in Ontario jumped 22 per cent in the first quarter of 2008 over the previous quarter.
In Ontario's cities, starts jumped by 38 per cent in June compared to the same time in 2007. And investment in construction grew by 1.6 per cent in 2007's fourth quarter. This represented the fifth consecutive quarterly hike in the province's housing industry.
"I think that process is over and we will sink back," Drummond added.
However, he doesn't foresee a U.S.-style price slump here because Ontario home prices have increased in a "more measured fashion."
But Drummond also warned some parts of the U.S. – such as Florida and California – have not seen prices bottom out yet.
"There are still 20 per cent of homeowners in potential arrears because value is dropping in their homes while their (subprime) mortgage rates go up," he told the conference.
Drummond predicted that mean prices in previously red-hot markets like Miami and parts of California will have to drop to 2002 levels before they even start to rebound.
"Prices in the U.S. still have to fall to the point where people think they are a bargain because they are still high down there," he added.
Meanwhile, Municipal Affairs and Housing Minister Jim Watson told the conference that despite a softening of new housing starts in other parts of Canada, starts in Ontario are on the increase.
"I commend the OHBA for the work you have done in continuing to build a thriving market," Watson told the conference.
Watson told conference goers that Ontario's new home builders asked the government to phase in new EnerGuide 80 requirements.
"We heard your concerns and decided it was best to phase in some of the new energy requirements through to the end of 2011," Watson said.
"We are now working with the OHBA and others to implement the energy requirements in a way that gives industry the time it needs to prepare," he added.
The housing conference attracted over 400 people to Collingwood's Blue Mountain Conference Centre.
NEW PRESIDENT: Frank Giannone was elected the next president of the Ontario Home Builders' Association during the organization's annual general meeting.
A member of OHBA's executive committee, Giannone previously served as the association's first vice-president.
Giannone is a fourth-generation builder and has worked in the industry for his entire career.
His great-grandfather and grandfather were builders in Italy and his father, John, founded Fram Building Group in 1981, naming the company after Frank and his siblings Ralph, Antonietta and Mariana.
Toronto Star