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Canadian house prices easing
Sep 30, 2008 04:15 PM
Ka Yan Ng
Reuters
The Canadian housing sector is slowly edging towards a buyer's market but there are no signs it will suffer a U.S.-style crisis, reports showed today.
"Every dollar drop in the value of Canadian real estate elevates the level of anxiety about a U.S.-style housing meltdown in Canada," CIBC World Markets economist Benjamin Tal said in a report.
"To be sure, house prices in Canada will continue to ease in the coming months. But the triggers that led to a freefall in Canadian real estate markets in the early 1990s and today in the U.S. markets are nowhere to be found," he wrote.
Tal said the overall picture of the national housing market is far from uniform. He pointed to Alberta's two main cities – Calgary and Edmonton – where homeowners had seen the value of their homes double "during the course of breakfast", thanks to the western province's oil and gas boom.
But these areas are now seeing close to 2.5 new house listings for every unit sold.
"The trigger for the current slowing in these markets is a sharp deterioration in affordability," Tal said.
At the same time, in other parts of the country, affordability did not decline as fast, he said. From a national perspective, it is now 20 percent more affordable to carry the costs of buying a house than when interest rates were in double-digits in 1990.
In addition, risky mortgages accounted for no less than 33 percent of originations in the United States, which helped cause that market's turmoil. That compares with Tal's estimate that non-conforming mortgages, at their peak, reached 5.4 percent in Canada.
Separately, the Canadian Real Estate Association said fewer properties were listed in August with a 5.4 percent decline from levels recorded in July. Seasonally adjusted national sales activity eased by 3.8 percent on a month-over-month basis to 37,118 units in August 2008.
CREA said the August numbers suggested the resale housing market is "stabilizing" in most provinces.
The national average price for a resale home was down 4.6 percent at C$290,347 in August from C$304,253 last year. The western provinces of British Columbia and Alberta, where house values had risen sharply, dropped year-over-year. But the average price in many other major markets actually rose.
"As our analysis shows, the Canadian housing market is stable and home sellers are not under pressure to sell. This is in stark contrast to the U.S. housing market, where there are a large number of distress sales," said Gregory Klump, CREA's chief economist.
Klump said he expects active listings may continue to ease as price gains narrow and prospective buyers wait longer to purchase a home.
The stability of the Canadian housing market came into question last week when Merrill Lynch Canada economists said in a report that the absence of a credit crunch in Canada, like the one in the United States, should be a cause for concern, not comfort.
The Merrill report said Canadian households were overextended and added that the market was too optimistic about the prospects for the housing sector and the overall economy.
Sep 30, 2008 04:15 PM
Ka Yan Ng
Reuters
The Canadian housing sector is slowly edging towards a buyer's market but there are no signs it will suffer a U.S.-style crisis, reports showed today.
"Every dollar drop in the value of Canadian real estate elevates the level of anxiety about a U.S.-style housing meltdown in Canada," CIBC World Markets economist Benjamin Tal said in a report.
"To be sure, house prices in Canada will continue to ease in the coming months. But the triggers that led to a freefall in Canadian real estate markets in the early 1990s and today in the U.S. markets are nowhere to be found," he wrote.
Tal said the overall picture of the national housing market is far from uniform. He pointed to Alberta's two main cities – Calgary and Edmonton – where homeowners had seen the value of their homes double "during the course of breakfast", thanks to the western province's oil and gas boom.
But these areas are now seeing close to 2.5 new house listings for every unit sold.
"The trigger for the current slowing in these markets is a sharp deterioration in affordability," Tal said.
At the same time, in other parts of the country, affordability did not decline as fast, he said. From a national perspective, it is now 20 percent more affordable to carry the costs of buying a house than when interest rates were in double-digits in 1990.
In addition, risky mortgages accounted for no less than 33 percent of originations in the United States, which helped cause that market's turmoil. That compares with Tal's estimate that non-conforming mortgages, at their peak, reached 5.4 percent in Canada.
Separately, the Canadian Real Estate Association said fewer properties were listed in August with a 5.4 percent decline from levels recorded in July. Seasonally adjusted national sales activity eased by 3.8 percent on a month-over-month basis to 37,118 units in August 2008.
CREA said the August numbers suggested the resale housing market is "stabilizing" in most provinces.
The national average price for a resale home was down 4.6 percent at C$290,347 in August from C$304,253 last year. The western provinces of British Columbia and Alberta, where house values had risen sharply, dropped year-over-year. But the average price in many other major markets actually rose.
"As our analysis shows, the Canadian housing market is stable and home sellers are not under pressure to sell. This is in stark contrast to the U.S. housing market, where there are a large number of distress sales," said Gregory Klump, CREA's chief economist.
Klump said he expects active listings may continue to ease as price gains narrow and prospective buyers wait longer to purchase a home.
The stability of the Canadian housing market came into question last week when Merrill Lynch Canada economists said in a report that the absence of a credit crunch in Canada, like the one in the United States, should be a cause for concern, not comfort.
The Merrill report said Canadian households were overextended and added that the market was too optimistic about the prospects for the housing sector and the overall economy.