Risk of major housing price correction 'very low': Scotiabank
15.05.2008 17:03
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- Source: cbc.ca
Unmistakeable signs of cooling are appearing in the Canadian real estate market, but the chance of a big drop in prices is "very low," according to an analysis from Scotia Capital. "After many false calls, there is now convincing evidence that Canada’s housing market has come off the boil," writes Scotia economist Adrienne Warren. Warren cites a confluence of indicators to argue her case for cooling: - Home sales are falling nationally.
- Demand for residential building permits has plunged.
- Average annual price increases are steadily easing back from the 10 per cent increases that marked the boom years of 2002 to 2007.
- Inventories of unsold new homes are trending higher.
But Warren does not see the same kind of price drops that followed the last two housing booms. Following the 1977 to 1984 boom, peak-to-trough selling prices plunged by 24 per cent. The drop was 15 per cent after the 1990 to 1998 boom. "However, we believe the current cycle has less downside risk, as it appears to be built on a stronger economic foundation than those of the 1970s and 1980s," she says. Warren lists five main reasons why this time should be different: - Home prices in Canada are not overvalued.
- There's little evidence of widespread speculation.
- Canada's housing market is not overbuilt.
- Households are not over-leveraged, noting that mortgage carrying costs as a share of disposable income are historically low.
- Overall mortgage quality is still sound, as Canadian lending standards are tighter than those in the U.S.
Warren predicts a "soft landing" for the Canadian housing market, with "a period of relatively flat inflation-adjusted home prices." She acknowledges that there are risks to her forecast if the U.S. economic slump turns out to be deeper or longer-lasting than currently predicted. "Tighter credit conditions and heightened global financial market volatility in the wake of the U.S. sub-prime mess pose additional downside risks to the sector’s overall performance." The Scotia report came a day after the Canadian Real Estate Association released figures that showed the number of resales in Canada's major markets fell 6.1 per cent from a year earlier. Average selling prices were up by 3.2 per cent year-over-year — the slowest pace of increase in more than six years. The number of new listings was also at a record high. Post a commentPeople have commented on this storyRecommend this storyPeople have recommended this storyStory Tools: E-MAIL | PRINT | Text Size: SMLXL | REPORT TYPO | SEND YOUR FEEDBACKStory comments (0)Sort:Most recent | First to last | Most recommendedPost your commentNote: The CBC does not necessarily endorse any of the views posted. By submitting your comments, you acknowledge that CBC has the right to reproduce, broadcast and publicize those comments or any part thereof in any manner whatsoever. Please note that comments are pre-moderated/reviewed and published according to our submission guidelines. Comment:Characters allowed: 2500PostSubmission policyRelatedInternal LinksMLS listings reach record highNew home construction to drop in 2008: CMHCMoney HeadlinesCAW reaches tentative contracts with GM, Chrysler00The Canadian Auto Workers union confirmed Thursday it has reached tentative contract deals with General Motors and Chrysler.Broadcast rules on internet, cellphones under review00The roles of the internet and cellphones in broadcasting are up in the air as the CRTC has launched a public consultation on what its role should be in regulating these "new media."Risk of major housing price correction 'very low': Scotiabank00Unmistakeable signs of cooling are appearing in the Canadian real estate market, but the chance of a big drop in prices is "very low," according to an analysis from Scotia Capital.Manufacturing sales fall more than expected00Canada's manufacturing sector staged a broad retreat in March as shipments fell by 1.6 per cent to $49 billion, Statistics Canada said Thursday.New home construction to drop in 2008: CMHC00Higher mortgage costs are expected to slow new home construction in 2008, but numbers will remain high by historical standards, the Canada Mortgage and Housing Corporation said Thursday.Money FeaturesMONEY TALKSEllen RosemanDo you know what your insurance covers?TECHNOLOGYFast foodNew techniques for making fast food fasterBIZ HITVideo UpdateHourly market wrap from CBC NewsworldPeople who read this also read …
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