Attached is an excellent report put out by one of the most respected Ecumenist's in Canada , Benjamin Tal.
It is an easy read and is NOT written in economic babble.
In short , Tal covers 3 main topic's that could "Trigger" a US type meltdown.
1 Market Balance & Location - currently we are in a balanced market but will be in a buyers market by next year. BUT these are national figures and are being driven more by Western Canada than the GTA
2 Rates in relation to Affordability - comparing current affordability to 1990, rates would have to double to trigger a slide. This is not going to happen
3 Sub Prime - this is the root of the US problems , in short US exposure to this was 33% of the marketplace and Canada barely 5%
The current problems will pass but consumers are nervous, this paper may help calm some of your fears.
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Economics & Strategy |
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Weekly Market Insight |
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October 3, 2008 |
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NORTH AMERICAN & INTERNATIONAL ECONOMIC HIGHLIGHTS |
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Where's The Trigger for a Canadian House Price Crash? |
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Every dollar drop in the value of Canadian real estate elevates the level of anxiety about a US-style housing |
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meltdown in Canada. To be sure, house prices in Canada will continue to ease in the coming months. But the |
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triggers that led to a freefall in Canadian real estate markets in the early 1990s and today in US markets are |
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nowhere to be found. |
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Buyer's Market? |
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In six short months, the Canadian real estate market was transformed from a confident seller's market to a |
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more muted balanced market. And at this rate of growth in unit sales and new listings, by early next year the |
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Canadian housing market will turn, for the first time since 1995, to a buyer's market. |
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Direction is important, but so is magnitude. When measured against income, the Canadian real estate market |
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has indeed overshot. But a mere 5-7% drop in prices from current levels should bring the national average |
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back to equilibrium. That's a fraction of the 25% overshooting seen in the US by mid-2006. |
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Location, Location, Location |
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While the national housing market is still in a balanced position, the overall picture is far from uniform. Calgary |
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and Edmonton, where until recently homeowners doubled the value of their real estate during the course of |
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breakfast, are now seeing close to two and a half new house listings for every unit sold. Consequently, average |
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home prices in these markets fell by 8.5% and 4.6%, respectively, during the year-ending July 2008. |
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The trigger for the current slowing in these markets is a sharp deterioration in affordability. With house prices in |
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Alberta doubling since 2004, housing affordability has deteriorated to levels not seen since the early 1990s. |
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However, in other key markets such as Ontario and Québec did not worsen so rapidly. In fact, from a national |
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perspective, it is now 20% more affordable to carry a house than it was after Governor Crow took interest |
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rates to double-digit territory in 1990. Put differently, to bring national affordability back to the levels that |
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triggered the real estate correction of 1990, current mortgage rates would have to double. |
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US Minus Subprime = Canada |
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US housing prices have been falling for two years with a cumulative decline of 18% to date-on their way to |
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an eventual correction of 25%. Having started the housing boom roughly at the same time (around 1997), the |
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Canadian housing market is now lagging the US market by roughly two years. |
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