Aquaseal Basement Foundation Concrete Crack Repair Specialist Ontario

Aquaseal Basement Foundation Concrete Crack Repair Specialist Ontario
Click Me (Sponsored Ad)

Ashpark Basement Waterproofing Contractors 1-800-334-6290

Ashpark Basement Waterproofing Contractors 1-800-334-6290
Sponsored Ad (Click Me For Online Estimate)

Friday, December 3, 2010

Boom Backlog or Bubble? Canada's Housing Market

Boom Backlog or Bubble? Canada's Housing Market
Boom, backlog or bubble? There’s been much speculation about Canada’s housing market and whether it’s entering ‘bubble’ territory.
Fuelled by low interest rates, Canada's housing market staged a strong recovery from the financial meltdown to return to record levels of activity in late 2009. That helped pull the overall economy out of recession.
Steep prices and activity gains at a time when other areas of the economy, such as job creation, remain sluggish have raised fears of a bubble.
“No doubt the market is hot. Hotter than one would expect given the economy and unemployment,” Douglas Porter, BMO Financial Group deputy chief economist, told QMI in an interview Wednesday.
Price tags on homes in Canada jumped 19% in December from a year earlier and are on pace to climb another 5.4% to a new all-time record this year, according to the latest figures from the Canadian Real Estate Association.
Affordability could soon be out of reach for many as the price of the average home in Canada is on track to reach $337,500 by year’s end before easing again in 2011.
But Porter put a pin in bubble fears.
“We’re not in full-fledged bubble territory just yet,” he said, pointing to higher prices in the already expensive markets of Toronto and Vancouver, which may be slanting national averages and forecasts.
A backlog of activity could also be skewing the latest real estate snapshots as buyers and sellers re-enter the market after putting off decisions during the recession.
"A downward trend in national sales activity, combined with an increase in listings will result in a more balanced market,” CREA Chief Economist Gregory Klump said earlier this week.
Higher prices aren’t the only factor in bubble-forming either, according to Gilles Duranton, an economics professor specializing real estate markets at the University of Toronto.
That’s because like any other investment asset, house prices are a reflection of what the market is willing to pay at a given time. They’re based on predictions of what a particular property could be worth in the future, Duranton said. In most cases, prices are somewhat justifiable, therefore price tags alone cannot signal the onset of a bubble.
However, there is one aspect of today’s market that this long-time real estate watcher has rarely seen before in Canada.
“Individual markets are all on the way up at the moment,” Duranton said pointing to Canada’s major metropolitan areas including Vancouver, Calgary, Toronto and Montreal.
“It’s quite unusual historically and certainly not the norm,” he said.
Other warning signs of hot air include double-digit credit growth among consumers and persistent lineups for new building projects, neither of which have come to fruition yet, according to BMO’s Porter.
Still, Porter said, the current atmosphere warrants a close eye from policymakers.
A bubble and subsequent burst could have devastating consequences for the economy, he said.
Consumer confidence would be shattered if paper wealth were to take a sizable hit. Financial institutions would also be hurt if foreclosure and loan delinquencies spiked.
But, in the event of a real estate crash, the federal government would bear the biggest brunt of the costs since they are the final backstop on mortgages, Porter said.
The federal government and the Bank of Canada should be considering “minor tweaks” to take some steam out of the market, Porter said, but stopped short of recommending a hike in the minimum down payment required on the purchase of a home.
The government has already reduced the maximum allowable amortization period from 40 years down to 35 and could take steps to increase minimum down payments next.
The Bank of Canada has downplayed talks of a bubble thus far, but has said it’s watching home prices closely. The central bank has said it expects to hold its lending rate at historic lows of 0.25% until at least June.
The whole purpose of lowering interest rates was to stimulate the economy and get real estate transactions flowing again, Porter said.
“It doesn’t make sense for officials to slam on the brakes now.”
The head of ING Direct Canada and economists at Scotia Capital also warned Tuesday that dramatic rules changes by Ottawa at this stage in the game could swing the housing market in the opposite direction too quickly.

Boom Backlog or Bubble? Canada's Housing Market, Boom Backlog or Bubble? Canada's Housing Market, Boom Backlog or Bubble? Canada's Housing Market

No comments:

Post a Comment