« Is our real estate crisis looming? | Main | Luxury home sales holding steady »

Real Estate Softening, not Collapsing

High prices rather than tightening credit conditions are curbing Canadian home buyers' enthusiasm, says a new Desjardins Economic Studies report that argues Canada is not headed for a U.S.-style housing market collapse. "Price advances had been supported by fundamentals - strong employment and low interest rates - not softening credit conditions. Canada's real estate market is therefore not overvalued, a finding confirmed through a recent study published by the IMF," says the report by Desjardins senior economist Hélène Bégin.

The resale market in Canada is approaching equilibrium, Bégin writes, arguing that price declines are not widespread but contained to several western Canadian cities such as Vancouver, Victoria, Calgary and Edmonton, where prices had already rocketed to stratospheric levels.

"Since these same cities had carved the path to soaring home values and their weighting in the volume of sales had increased over the years, the downward shift in prices is enough to slash average home prices across the board in Canada," says Bégin.

However, Bégin acknowledges Canada's real estate market is reaching a turning point.

"If the economic environment is slow to improve and demand weakens further, price declines could spread to other cities. More markets would have to reach a surplus situation to get to that point, which seems unlikely in the short term but it could happen," Bégin writes.

Toronto is most at risk with its sales-to-new listings ratio in the second quarter of 2008 firmly in balanced territory at 50%. Other markets would have to deteriorate significantly to see prices shift further downward, and markets such as Montreal, Quebec and Ottawa, where slight shortages have been reported, seem to be "sheltered from any possible depreciation," Bégin writes.

Despite the recent declines in home prices, the price growth in the first half of the year will still mean an increase of 2.0% - 2.5% by the end of 2008, Bégin says. But she adds, a decline as high as 5% is almost inevitable in 2009 as demand will be slow to pick up and the price corrections will broaden. Modest price increases anticipated in Central Canada won't be enough to offset price declines elsewhere. Further, stricter borrowing rules for mortgages brought in by the federal government will limit the pool of potential home buyers, Bégin says.

"Unless Canada posts significant job losses in the coming months, the slowdown in the real estate market will be gradual overall," Bégin writes. However, she cautions any substantial deterioration in the global financial environment could undermine financial institutions, leading to even tighter credit conditions. "Canada's real estate market would then be subjected to the dreaded contagion we have heard so much about. The current financial crisis could have some surprises in store."

September 26, 2008 in Canadian Market Forecast | Permalink

TrackBack

TrackBack URL for this entry:
https://www.typepad.com/services/trackback/6a00d8341c51e453ef010534d81103970c

Listed below are links to weblogs that reference Real Estate Softening, not Collapsing:

Comments

The collapse of the Lehman Brothers and the buyout of Merill Lynch have not become a reason to frown for Indian realtors, as they are putting up a brave front and maintaining that there will be no impact on the real estate sector of the country. Lehman Brothers filing for bankruptcy will impact those Indian realty operators who have not structured their agreement carefully, according to Mr. Sanjay Dutt, joint Managing Director, Cushman & Wakefield. He does not foresee a situation where projects would get shelved. "Most of the funds that were committed have been delivered." Mr. Dutt is of the opinion that if projects get shelved it is mostly because of changing market dynamics and not because of a lack of liquidity. Experts think that in a bid to de-risk, these investment bankers would trade their private equity placements. India is still a growth story and as far as the real estate investment is concerned it is very attractive from a long-term perspective.For more view- realtydigest.blogspot.com

Posted by: riathareja | Sep 29, 2008 6:38:32 AM

Does the US Economy effect Canada in terms of loans and financing for homes?

Posted by: Jay Valento - Long Beach real estate | Sep 29, 2008 3:07:41 AM

Quoting IMF for considering values in Canada not overvalued is just too funny. If a first time buyer has to enter a real estate market with a down payment from their parents or a 40 year mortgage you pretty much know that the real estate market is overvalue no matter how you cut it.

Posted by: Investor | Sep 28, 2008 8:46:33 PM

Real Estate will Collapsing,soon

Posted by: | Sep 27, 2008 3:27:14 AM

The comments to this entry are closed.

 

Thank you for visiting!