Forget about housing crash

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Conference Board gives market clean bill of health

The Conference Board isn’t buying the notion Canada’s housing market will suddenly crumble, saying the most likely outlook is for a modest decline nationally and in some specific markets.

The Conference Board of Canada says despite pessimism in the housing market, conditions for a crash do not presenty exist. — Associated Press file photo

The Ottawa-based think-tank argues in a comprehensive new look at real estate in Canada that the conditions for a crash simply don’t exist, despite numerous reports that the market is overbuilt and overvalued.

Rather, the report argues that with the possible exception of Toronto, housing starts the past three years have been roughly in line with the 20-year average.

Even in Toronto, there is only a “borderline” case that it could be overbuilt.

“At this point in the housing cycle, there is a risk that Canadian housing prices in some market segments are due for a modest correction,” the report states.

“Nevertheless, we believe that continued population growth, additional employment gains and modest mortgage rate increases will limit potential price declines in 2014 and 2015.”

There is a case for more dramatic price adjustment further out if higher mortgage rates start crimping affordability, the Conference Board says, but even then it is likely to be a soft rather than a hard landing.

Stark terms

In recent years, some economists and international organizations such as the OECD, the IMF, Deutsche Bank and The Economist magazine have described Canada’s housing market in stark terms, characterizing it as among the priciest in the world based on

historical averages and other metrics.

But the consensus of economists within Canada has tended to be more subdued. Last week, the Canadian Real Estate Association also predicted a slowdown as mortgage rates start edging up later in the year, but it still saw the market overall growing in 2014 and 2015.

The Conference Board says fears of a housing bubble about to burst in Canada are exaggerated.

It says some of the evidence cited by correction hawks, including comparing home prices as a multiple of rental costs, don’t take into account historically-low mortgage rates that keeps affordability steady.

Citing Toronto, it notes that in 2013 mortgage payments consumed less than 20 per cent of average household income, the same as in 1993.

“Mortgage costs, not just house prices, are the principal deciding factor for potential homebuyers,” says Robin Wiebe, the think-tank’s senior economist.

Even when mortgage rates do start rising, the Conference Board believes it will happen gradually and over an extended period. For instance, it forecasts rates with only a gain of 200 basis points — two percentage points — by 2017 or 2018.

But at current low rates, the typical homeowner on a posted five-year rate will have paid down $42,104 principal on a $100,000 in mortgage debt, so affordability won’t be seriously impacted once it comes time to renew at a higher rate.

The Conference Board provides an outlook on six major cities:

•    Vancouver: Moved back into balance last spring. Recent price gains will give way to slower advances in 2014.

•    Calgary: A approaching sellers’ conditions, noting strong price gains last year.

•   Edmonton: Balanced, with brisk resale and price growth activity last year.

•   Toronto: Balanced with healthy price growth. A major correction is difficult to see given solid employment and population growth.

•    Ottawa: Market cooling due to falling employment from the government sector, flatter sales and tempered prices.

•    Montreal: Flirting with buyer’s market conditions with sales and average prices having dropped somewhat last year.

Organizations: OECD, IMF, Deutsche Bank The Economist magazine Canadian Real Estate Association

Geographic location: Canada, Toronto, Ottawa Vancouver Calgary Edmonton Montreal

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Recent comments

  • a business man
    March 26, 2014 - 06:30

    This is excellent news to those of us who own our homes and also for those who own rental/investment properties. I have made more than 3 times my investment on each of my properties, and I am charging rents that are higher than I initially expected. There is no Housing Fraud; rather, what is happening is the natural effect of supply and demand. I hope that housing prices go higher and higher, because this is absolutely fantastic.

  • Brad
    March 25, 2014 - 12:09

    “Mortgage costs, not just house prices, are the principal deciding factor for potential homebuyers,” says Robin Wiebe, the think-tank’s senior economist. This is exactly what is wrong. Too many blue collar workers have more money than brains. They go buy a house thinking they can afford a $1500/month mortage payment making $3500/month. Fine and dandy when you start buying toys, having kids...next thing your job is gone because the project is done and interest rates are up a couple of points. I know quite a few people who would be screwed if they lost their job tomorrow and the interest rate went up 1% here. The market can only be propped up by Alberta for so long

  • Joe
    March 25, 2014 - 07:29

    My only question is who is in charge of House Appraisal Fraud?