A good dose of “economic reality” about Canadian housing market

The Canadian Real Estate Association says what is now required is a good dose of “economic reality” about the housing market in Canada.

“Analysts continue to try and suggest the Canadian housing market will follow the United States which raises concerns,” said CREA past-president Ann Bosley, “but the statistics say the contrary.”

In a letter to CREA’s membership, Bosley pointed out that when analysts over-emphasize the so-called comparison with the U.S. market, their predictions have the potential to “become self-fulfilling.” 

“The greater the predictions of doom,” she added, “the greater potential hit to consumer confidence and the greater the impact on the Canadian housing market.”

Fueling the spate of dire warnings are national publications such as Maclean’s which in a recent issue carried the front cover headline Canada’s Looming Real Estate Crisis. The magazine predicted on its front cover “house prices may soon fall through the floor.” The accompanying article expressed the opinion “it could happen here” — a reference to the meltdown in the U.S. housing market due to the sub-prime mortgage debacle.

Newspapers have also cited a report by Merrill Lynch Canada which predicted it’s only a matter of time before the “tipping point” is reached in the Canadian housing market and a major downturn occurs.

Merrill Lynch’s report is the exception and not the rule. Most economists have concluded the fundamentals of the Canadian housing market are strong, and Canadian banks issued only an extremely small percentage of sub-prime mortgages that doomed the U.S. housing market.

A recent report from Scotia Bank called the dire predictions “nonsense.” 

“The bottom line is that we do believe there to be considerable downsides to the Canadian housing market, but comparisons of Canadian mortgage prospects to the U.S. experience are off-base,” according to the report, Special Update: Canadian Mortgages, by Scotia Economics.

The number of properties listed via the MLS® systems of real estate boards in Canada did retreat in August 2008 from record levels in the previous four months, according to CREA. With new listings down from the recent peak, the resale housing market is stabilizing in most provinces, and not in a tailspin as some analysts have predicted.

“These days, REALTORS® in Canada face a lot of questions about the real estate market, real estate price bubbles, and the value of a home,” said CREA president Calvin Lindberg. “That’s because we are at the end of an unusually active period in Canadian real estate — 2007 was a record year for many of the things we use to monitor the real estate market, including the average MLS® residential price.

“We must remember that all markets go through cycles, and remember that the national housing market is actually made up of different communities. Real estate markets are local, and every community, and every area, is different in terms of trends and pricing,” he added.

“Slower activity in some of Canada’s pricier housing markets compared to year-ago levels will continue weighing on the national average price,” explained CREA chief economist Gregory Klump.

“As our analysis shows, the Canadian housing market is stable and home sellers are not under pressure to sell. This, in stark contrast to the U.S. housing market, where there are a large number of distress sales. 

“In Canada, with price gains diminishing and home buyers taking more time to shop, the number of active MLS® listings may continue to ease so the Canadian housing market will stabilize further,” added Klump.