Canadian home prices will drop 10 percent to 15 percent “over time” as mortgage rates rise and supply swells, said Sadiq Adatia, chief investment officer of Sun Life Global Investments Inc.
“I don’t think the demand is going to be there for housing,” Adatia, who manages about C$6.4 billion ($6.2 billion) at Sun Life Global, a unit of Sun Life Financial Inc.
The recent upswing in housing activity is being driven by buyers rushing in as banks raise borrowing costs, Adatia said said today at the Bloomberg Canadian fixed-income conference in New York.
“I do think it’s a dead cat bounce,” he said.
Home sales surged in Canada’s two largest markets in August. Sales rose 21 percent to 7,569 units in Toronto from a year ago, according to the Toronto Real Estate Board, and Vancouver existing home sales surged 53 percent, said that city’s real estate board.
The average price of a home sold in Toronto was C$503,094 ($487,636) in August, the Toronto realtors group said.
Home prices rose 2.3 percent in August from the year-ago period, according to the Teranet-National Bank Composite House Price Index released today. Toronto prices advanced 3.8 percent from a year ago, while Vancouver housing prices fell 0.1 percent in the month from last year.
The country’s housing market will probably experience a so-called “soft landing,” as the near-record household debt-to-income ratio continues to constrain construction, said Julien Reynaud, desk officer for Canada at the International Monetary Fund.
Canada’s economy is slowing as its Group of Seven peers show signs of improvement. Output growth eased to a 1.75 percent pace in the second quarter while the U.S. expanded 2.5 percent. The country’s jobless rate will exceed the U.S. next year for the first time since 2008 as hiring slows and the Bank of Canada will delay raising rates until the fourth quarter of next year, according to a Bloomberg economist survey.
The slowdown presents the ideal opportunity for investors to plan a Canadian portfolio and line up asset allocations for when the economy picks up, said John Cerra, a portfolio manager at TIAA-CREF, a New York-based financial services firm which has $523 billion in assets.
The global economy is picking up already, he said. “We have a situation now in 2013 where the U.S. economy is growing, and rates are rising and our stock market’s rising, money is coming back to the U.S. from many other markets,” Cerra said. “Money is moving away from Canada because we don’t necessarily need a safe harbor.”