Housing Forecasts: Australia, Canada, United States

There has been much discussion about the differences between the housing markets in North America and Australia. Australia is said to be undersupplied, and North America oversupplied, and therefore the corrections that are coming as a result of the financial and economic crisis are likely to be very different in Australia, with prices not likely to decline in the manner they have in North America.

A quick overview of the stage of the housing cycles in Australia and Canada, with markets similar in size, and the United States, with a significantly larger market than both, suggests that this is likely the case, as there is some variation in the timing of the housing cycle in the three countries.

Australia

In Australia, the housing cycle entered the downturn in early 2005, declining by 13% in the three years to 2007, and finally growing by 4% in 2008, before the upturn was cut short by the global financial and economic crisis. Until 2008, there was very little building in an undersupplied market. Building has been well below underlying demand of around 170,000. A further decline of 17% is likely in 2009, even though there is undersupply. The downturn in construction is a result of the global economic downturn.

Canada

In Canada, building was at historically high levels for the three years to 2008, and the market finally turned down in 2008. It was oversupplied, with building over the three years well above underlying demand of around 175,000. A further decline of 33% is likely in 2009, driven by the global economic downturn and the inherent oversupply. This will be followed by a slow upturn in 2010, and more rapid growth in the three years to 2013. 

United States

In the United States, housing construction declined sharply for a three year period, declining by 65%, a massive decline caused by an oversupply, which in turn contributed to the global financial crisis. There has been significant underbuilding over the past three years, well below underlying demand of around 1.5 to 1.8 million houses annually. A further decline of 27% is likely for 2009, prior to a correction beginning in 2010.


               Housing starts, Australia, North America 2004–2013

	Australia	Canada	United States
Actual:	million units
2004	0.175	0.233	1.956
2005	0.160	0.225	2.068
2006	0.152	0.227	1.801
2007	0.152	0.228	1.355
2008	0.159	0.212	0.983
Forecasts:
2009	0.132	0.142	0.651
2010	0.160	0.150	1.073
2011	0.175	0.174	1.431
2012	0.185	0.195	1.696
2013	0.196	0.214	1.755
Actual:	Annual per cent change
2004	2	7	6
2005	-8	-3	6
2006	-5	1	-13
2007	0	0	-25
2008	4	-7	-27
Forecasts:
2009	-17	-33	-34
2010	21	6	65
2011	9	16	33
2012	6	12	19
2013	6	10	3

Forecasts

It appears that a significant surge is coming in housing construction in the United States, in the three years to 2012, with the market catching up following four years of considerable underbuilding. In Australia, there is also likely to be a sharp upturn as a result of underbuilding, and a cycle that was cut short. In Canada, where the cycle was about to enter a natural downturn, it appears that the upturn will be more subdued, with housing construction rebounding slowly in 2010 and 2011, and strengthening later than in Australia and the United States. All three countries however, are due for an upturn in 2010, and stronger growth over the four years to 2013.

As a leading indicator, housing construction will drive the upturn, which bodes well for strongly growing economies in all three countries from 2010. If housing construction in other major markets such as Europe and Japan moves into the upward phase of the cycle with similar timing to the North American and Australian markets, brace for a strong synchronized global upturn in economic activity over at least four years, starting in 2010.