Well there's always the glass half empty perspective.
http://www.thespec.com/news/business...se-report-says
OTTAWA A new report predicts Canada’s housing market is poised for a collapse and is only waiting for the trigger of rising interest rates expected for later this year — a view that flies in the face of many other forecasts.
Capital Economics calculates Canadian home prices could fall by about 25 per cent — and even as much as 35 per cent — over the next three years once the Bank of Canada begins tightening monetary policy.
Most economists expect the central bank will begin doing just that in late spring or early summer, with the trendsetting rate rising from the current 1 per cent to more than 2 per cent by the end of the year.
And the Bank of Canada is expected to keep hiking the policy rate next year until it returns to normal levels — about 3.5 per cent — by the end of 2012.
That would have profound implications both for home values and the economy, says David Madani, Canadian chief economist of Capital Economics.
“Even small rises in official interest rates have been shown to have a big effect on homeowner confidence in other countries under similar circumstances,” Madani said Thursday. “If the Bank of Canada does resume its monetary tightening this year, this could easily prove to be a tipping point for a house price collapse.”
The knock-on effects of homeowners seeing the value of their biggest asset crash could see consumer confidence and spending plunge, damaging the economy, he added.
And, if prices fall 35 per cent, the Canadian Mortgage and Housing Corp. that insures higher-risk mortgages could suffer losses of $10 billion as about 10 per cent of mortgages default.
Capital Economics is not the only, or first, private-sector group that has warned about Canada’s hot housing market, which defied all odds in rebounding strongly while the country was still in recession, thank’s to super-low interest rates.
But, so far, all predictions of doom have been unfulfilled.
The Bank of Canada and the majority of private sector forecasters are instead calling for a “soft landing” in the housing market, where prices flatten or fall at most a few percentage points. That slowdown has already begun in terms of both resales, prices and building permits for new homes.
The CIBC, for one, estimates home prices are inflated by between 5 and 10 per cent at most and judges most homeowners will be able to shoulder modest interest rate increases.
As well, Finance Minister Jim Flaherty has stressed he does not believe Canada has a housing bubble, while taking modest steps to tighten rules for mortgage borrowing to prevent one from occurring.
Since 1999, home prices in Canada have risen by 7 per cent each year to about $314,000 — or 125 per cent — using an index that averages resale values of two-storey homes and two-bedroom condos. That puts home prices at about 5.5 times the average disposable income per worker of $58,347, well above the historical average of 3.5 times.
As well, the price ratio of ownership to the cost of renting has almost doubled in 10 years.
Add to those markets that excess supply of new housing units is high by historical norms, and home ownership is already at record levels, and the recipe for a major correction are in place.
The Canadian Press
25 to 35% drop in house prices sounds far fetched. Is it possible, and if so, would Hamilton weather the storm better as it usually does?
Prev
Linear Mode
