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 released data about high levels of Canadian consumer debt aren't proof that there were 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 that Canada's debt-to-income 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, earlier 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 them 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 and they were faced with increased monthly payments.
"The introduction of the teaser rate, a low introductory rate for a period of two or three years that would adjust upward at the end of the initial period, worked to effectively neutralize U.S. monetary policy," Tal wrote.
"The practical implication of that was that when the teaser period expired, millions of Americans felt the full impact of two years’ worth of monetary tightening virtually overnight."
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 pre-recession 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."
Related on HuffPost:
- Canadian Household Debt By Region
- 6. Atlantic Canada: $69,300
- 5. Quebec: $78,900
- 4. Manitoba & Saskatchewan: $84,900
- 3. Ontario: $124,700
- 2. British Columbia: $155,500
- 1. Alberta: $157,700
WHAT $350,000 WILL BUY YOU IN THESE CANADIAN MARKETS
St. John's, Nfld. -- $125 Per Square Foot
This four-bedroom, two-bathroom custom-built bungalow in St. John's West End neighbourhood boasts hardwood floors, a covered sundeck and an oversized yard. With an asking price of $349,900 and 2,750 square feet of livable space, this spacious home costs approximately $125 per square foot.
Trois Rivieres, Que. -- $127 Per Square Foot
This five-bedroom, two-and-a-half bathroom house features a double-width garage and a heated inground pool. At approximately 2,750 square feet and an asking price of $349,900, it works out to around $127 per square foot.
Winnipeg -- $160 Per Square Foot
This spacious split-level home in southeast Winnipeg features four bedrooms and three baths, a stone fireplace and a jazuzzi in the master bedroom. It sits on a 142-foot-long, pie-shaped lot. At 2,182 square feet and a $349,900 asking price, it works out to around $160 per square foot. <strong>CORRECTION:</strong> <em>An earlier version of this slide incorrectly listed the price-per-square foot as $600</em>.
Red Deer, Alta. -- $248 Per Square Foot
This five-bedroom, three-bath home features vaulted ceilings, a fireplace and a massive walk-in closet in the master bedroom. At 1,408 square feet -- this average-sized house on the prairie works out to $248 per square foot.
Montreal -- $250 Per Square Foot
This two-story townhouse condo just east of downtown Montreal features three bedrooms and two baths, cherry wood floors and a terrace. At 1,400 square feet and an asking price of $349,000, this condo works out to $250 per square foot.
Burlington, Ont. -- $388 Per Square Foot
This cozy bungalow on the edges of the Greater Toronto Area features four bedrooms, two baths and a long, 175-foot lot. Highlights include a granite countertop and newly finished hardwood floors. At a snug 900 square feet, this house is going for $388 per square foot.
Toronto -- $499 Per Square Foot
This one-bedroom, one-bath condo in Toronto's Entertainment District features a balcony with a southeast exposure. In a sure sign the condo is outfitted with just the basics, the unit's sellers boast of its "brand name appliances" and "frost free refrigerator." At 700 square feet (including the balcony), it works out to $499 per square foot.
Vancouver -- $688 Per Square Foot
This one-bedroom, one-bathroom corner unit in Vancouver's Kitsilano neighbourhood "shows much larger than the square footage," the realtor boasts. That's good, because at 508 square feet, this place is only slightly larger than some of the bedrooms and living rooms available in similarly-priced houses in other markets. The condo boasts "gorgeous mountain views," but it'll cost you -- $688 per square foot.