House prices ‘rea­son­able’

P.E.I. hous­ing prices in­crease an­nu­ally by three to four per cent

The Guardian (Charlottetown) - - THE PROVINCE - BY MAU­REEN COUL­TER

Canada’s At­lantic and Pa­cific Coast are more than just at op­po­site ends of the coun­try — they are worlds apart when it comes to their real es­tate mar­kets.

On P.E.I., house prices in­crease an­nu­ally by three to four per cent with the av­er­age price around $160,000.

In Greater Van­cou­ver, the per­cent­age num­ber spiked by 23.6 per cent in 2015 with the av­er­age house price around $1.6 mil­lion. Mean­while, in the Greater Toronto Area that num­ber went up by 11.6 per cent for 2015 with the av­er­age house price around $806,700.

How­ever, a UPEI pro­fes­sor thinks th­ese high prices are in con­junc­tion with sup­ply and de­mand in those cities’ hous­ing mar­ket.

“Prices seem ridicu­lous, but there is lim­ited space and there is a lot of peo­ple who want houses,” said Jim Sen­tance, as­so­ciate pro­fes­sor of eco­nom­ics at UPEI.

Th­ese prices in metropoli­tan ar­eas have led the Bank of Canada to out­line two key vul­ner­a­bil­i­ties in its fi­nan­cial sys­tem re­view, in­clud­ing the el­e­vated house­hold debt and im­bal­ances in the hous­ing mar­ket.

In its most re­cent fi­nan­cial sys­tem re­view, it notes that most of th­ese in­debted house­holds are in larger cities like Toronto and Van­cou­ver, which rep­re­sent one-third of the value of hous­ing stock and mort­gage debt in the coun­try.

That doesn’t mean Is­lan­ders wouldn’t feel the im­pact if those con­cen­trated pock­ets were to take a nose­dive.

If a quick cor­rec­tion in th­ese mar­kets were to oc­cur, it could have an im­pact on the whole Cana­dian econ­omy and its fi­nan­cial sec­tor, read the re­view.

The cen­tral bank be­lieves the sys­tem is re­silient to th­ese ar­eas of weak­ness so long as there is no se­vere re­ces­sion or wide­spread un­em­ploy­ment.

To help cool down th­ese mar­kets, the Canada Mort­gage and Hous­ing Cor­po­ra­tion has tight­ened its rules and now re­quires a 10 per cent down pay­ment of mort­gages be­tween $500,000 and $1 mil­lion.

“That is re­ally go­ing to ad­dress what is go­ing on in Toronto and Van­cou­ver,” said Sen­tance.

Wayne El­lis, pres­i­dent of the P.E.I. Real Es­tate As­so­ci­a­tion, said this is not an overex­tended mar­ket, like in larger metropoli­tan cities, which is why P.E.I. has an ap­peal to many peo­ple out of prov­ince.

“Our hous­ing prices are so very rea­son­able com­pared to the rest of Canada.”

Sen­tance said the U.S. Fed­eral Re­serve rais­ing its in­ter­est rates makes it dif­fi­cult for Canada to con­tinue the route of mon­e­tary pol­icy.

Many an­a­lysts and pol­icy peo­ple would like to see in­ter­est rates be a lit­tle higher than they are cur­rently in this coun­try, he said.

“In­ter­est rates are so low that peo­ple are able to af­ford such large mort­gages, and I think that has been part of the prob­lem,” said Sen­tance. “It’s an in­cen­tive, it’s an en­cour­age­ment for peo­ple to bor­row more.”

Sen­tance said low­er­ing in­ter­est rates fur­ther would also put more down­ward pres­sure on our dol­lar.

“It’s help­ful for ex­ports, but not re­ally help­ful for our pur­chas­ing power and will prob­a­bly lead to more in­fla­tion be­cause im­ported goods are go­ing to cost more.”

Sen­tance said this un­der­scores the im­por­tance of putting more fo­cus on fis­cal pol­icy in­stead of mon­e­tary pol­icy.

Govern­ment is cur­rently go­ing that route with the prom­ise to run a deficit to stim­u­late the econ­omy.

“The size of the deficits they are talk­ing about are prob­a­bly not huge enough to have a re­ally large ef­fect on things,” said Sen­tance. “I think it will be help­ful, it will be more help­ful then fur­ther cut­backs to try and bal­ance the bud­get would be.”

HEATHER TAWEEL/THE GUARDIAN

Jim Sen­tance, as­so­ciate pro­fes­sor of eco­nom­ics at UPEI, said it may be dif­fi­cult for Canada to con­tinue the route of mon­e­tary pol­icy since the U.S. Fed­eral Re­serve raised its in­ter­est rates for the first time since 2006.

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