Investors around the globe are fascinated by Canada’s housing market. When Scotiabank vice-president Derek Holt did the rounds of U.S. cities last week to present Canadian Housing in a Macro Context, he must have been besieged.
housing market is stretched but there are lots of mitigating factors
that should quell some of the anxiety floating around, according to Mr.
Holt, who narrows in on “Why it’s Different from the United States”.
rates in Canada will stay low a while yet according to Mr. Holt and Dov
Zigler and Adrienne Warren, who put together some of the forecasts for
the road trip. They add that inflation won’t challenge Bank of Canada
targets while growth in wages remains weak.
Household debt growth
is already cooling, they add, and the central bank shouldn’t push that
too far. For one thing, other factors – including the strong Canadian
dollar, real wages and regulatory tightening – are already doing the
work of the Bank of Canada.
Still, the economists point out some
of their worries: Canada’s record-high rate of home ownership has
surpassed the rate in Australia, the United Kingdom and the United
States, Canada has overshot the United States on average house prices,
and the ratio of insured mortgages to uninsured has swelled.
should be bolstered by the fact that the sellers’ market of the past
few years is returning to a better balance between buyers and sellers.
There’s no evidence of too much building in the single-family house
market, they add, and the rules surrounding long mortgage amortization
periods and paltry down payments have already been strengthened.
for the number of cranes filling the sky in cities such as Toronto,
Montreal and Calgary, there are plenty of things driving the demand for
high-rise condominium units, say the economists. They point to the fact
that condos are more affordable and provide more to choose from than
single-family houses. People are moving here from overseas and those who
already live here are changing their lifestyles. There’s a trend to
urban intensification, vacancies for rental units are tight, and
investors are still keen to own condos.
But the economists do note
some “pockets of concern”: Vancouver has seen a jump in the inventory
of unsold condos compared with the long-term average, while Calgary’s
condo market is not lean either. Toronto’s condo boom masks the
shrinking amount of building in the market for detached and
semi-detached houses, they add.
As for why Canada is different
from the United States, the economists look at stronger household
finances on this side of the border. Canadians have more home equity and
more real estate assets.
Meanwhile, the country’s diversified
economy means that economic shocks – when they do hit – never hit all of
the local housing markets in various cities in the same way.
banks are strongly capitalized and there is far less shadow banking
than in the United States. That revolving-door-financing so popular
south of the border is not prevalent here.
Canadians don’t default
when house prices correct: In Toronto and Vancouver since the late
1980s, mortgage arrears have barely budged even when prices dropped.
chart showing average existing home prices as a multiple of income per
capita is particularly striking: While the line plotting the U.S.
numbers turned downwards back in 2006 or so, the Canadian trajectory has
been mostly upwards since 2001.
Source: The Globe and Mail