No big drop in housing prices foreseen by CIBC economist
TORONTO — The news out of Canada’s real estate market isn’t good, but the country will avoid a U.S.-style real estate meltdown, CIBC said Tuesday.
Economist Benjamin Tal said in a report that even recently published data about high levels of Canadian consumer debt aren’t proof that there could be a sudden, big drop in home prices.
“To be sure, house prices in Canada will probably fall in the coming year or two, but any comparison to the American market of 2006 reflects deep misunderstanding of the credit landscapes of the pre-crash environment in the U.S. and today’s Canadian market,” he wrote.
Tal noted Canada’s debt-toincome ratio has just broken the U.S. record set in 2006, but said other countries have had even higher levels without a crash.
Statistics Canada, in revising how it estimates household credit market debt, this month reported record household debt of 163 per cent of disposable income in the second quarter.
However, Tal said the U.S. market bubble saw U.S. homeowners with little or no equity value in their homes, making t hem vulnerable when prices fell.
As well, many buyers in the U.S. benefited from low introductory teaser rates on their mortgages only to be caught short when rates increased.
Home sales in Canada have been falling amid uncertainty about the economy and Ottawa’s tightened mortgage lending rules.
According to the Canadian Real Estate Association, September home sales fell 15.1 per cent from a year ago, while the national average price was up 1.1 per cent to $355,777 in September from a year earlier.
The association said excluding Vancouver, the country’s most expensive market, the average price was up 3.4 per cent from a year ago.
Tal said home prices in large cities like Vancouver and Toronto are overshooting their fundamentals and will likely slip as sales fall.
“But the Canada of today is very different than a prerecession U.S., namely as far as borrower profiles are concerned,” he wrote.
“Therefore, when it comes to jitters regarding a U.S.type meltdown here at home, the only thing we have to fear is fear itself.”