Canada’s housing market destined to follow US market?
Oct.29, 2008 in
Current Events, Economics, News of note |
David Wolf, an economist at Merrill Lynch, recently made statements to that effect. Based on a certain amount of foresight and crystal-balling, are we able to take the necessary action to reduce or remove the possible negative effects of a real-estate crisis in Canada? What are your thoughts on this?
In related news, the Wall Street Journal ran this piece on the bottoming out of US housing prices…
November 4th, 2008 at 12:07 pm
I do not believe Canada as a whole is destined to follow the States in this matter. Canadian banks have stricter lending practises and the joke interest only mortgages do not exist here. That being said, a portion of the blame for the credit crunch in the States needs to fall squarely with “revolving credit” and its overuse. Canadians too are abusers of revolving credit. Those cards in your wallet with Visa, MC, Diners, Sears, Canadian Tire, Wal-mart, etc etc are revolving credit. When people get in the habit of regularly living outside of their means (living on Visa for instance) they do not have the ability to weather even a minor blip in the markets. The rise in “pay day loan companies” is a MAJOR symptom of this. No longer able to even live on revolving credit people are now living one, two and sometimes three paycheques in the future. This was happening in the States for a period before the crash. An interesting docu-movie of this is Maxed Out. It was filmed before the CRASH and shows all the warning signs that were there way before the event.
I encourage people to pay off their credit cards and “adjust” their spending habits to do their bit in avoiding their own personal “crash”.
November 5th, 2008 at 8:32 am
I completely agree with Kimberly’s response. Unlike the US, Canada has strict lending policies which deter average “joe” real-estate investor from ‘flipping’ houses (CMHC Insurance, Capital Gains rules, Strict adhereance to debt load ratios, etc…), whereas our southern partners were buying handfuls of properties, which inturn created an inflated demand for houses.
Furthermore, i would like to mention that there are a number of conditions that were over-looked in his analysis;
1. The Canadian housing market is relatively “cheap” in comparison to other metropolitan cities (London, New York, etc)
2. The massive influx of immigrants to these 3 cities
3. The low value of the CDN dollar is an incentive for foreign investors to continue to purchase real estate.
4. The disporpotionate price between condos and free-standing homes.
Just to name a few.
In the end, i believe we will see a slow decline in prices but in the long run (3-4yrs) we’ll see a steady growth.
November 5th, 2008 at 9:28 am
Both very well put arguments. The only thing I would add as a counter point is this…
1) There is a growing gap between Canada’s large (and still rowing) inventories and a relatively slowly increasing demand. As this gap between supply and demand continues to grow, especially in markets where pricing is currently artificially inflated (Vancouver, Calgary, Edmonton…), the risks of a real estate bubble increase.
2) There is currently a disproportionate increase in housing prices as compared to salaries in certain key urban markets (see above). As housing prices continue to outstrip the markets ability to provide credit to consumers to pay for these homes, there is another potential challenge.
While I agree that there is considerably more regulation and controls in the Canadian marketplace, we are not immune to greed, low personal self-control and predatory business practices.
November 5th, 2008 at 9:36 am
“While I agree that there is considerably more regulation and controls in the Canadian marketplace, we are not immune to greed, low personal self-control and predatory business practices.”
Well said! No, unfortunately we not immune to the above. They are traits most (but not all) people have. Let’s face it, if the opportunity is there to make a “quick buck” most people will take it. The States was the equivalent of the “perfect storm” for greedy, self serving money mongers.