Canada’s housing market is “especially vulnerable” to a major correction, The Economist says in its latest roundup of global real estate.
The magazine’s dire prediction comes as Canada’s mortgage brokers’ association is warning that the recent slowdown in home sales will continue and lead to large-scale job losses -- though some parts of the country will continue to see growth in housing and related employment.
“A large bubble now looks set to burst,” The Economist predicts in its property markets report.
The U.K.-based business periodical found house prices in Canada are overvalued by 73 per cent when compared to rental prices, and 32 per cent overvalued when compared to household incomes.
“Home sales in March were 15 per cent down on a year earlier. Buyers are in short supply. A recent poll showed that only 15 per cent of Canadians are likely to buy a home in the next two years, down from 27 per cent last year — the steepest decline in the 20-year history of the survey. After a big boom, the housing bust will be a wrenching affair.”
Meanwhile, the Canadian Association of Accredited Mortgage Professionals (CAAMP) issued a forecast Wednesday calling for a 25 to 30 per cent decline in home sales by 2015, resulting in 150,000 lost jobs related to the industry.
“Until now, housing has played a major role in the recovery from the 2008/09 recession. That economic driver is disappearing as we see housing related jobs dry up and consumer confidence erode at a time when the national recovery is struggling to pick up steam,” CAAMP chief economist Will Dunning said.
The group predicts a 50-per-cent decline in housing starts in the Greater Toronto Area, leading to a loss of 35,000 jobs by 2015. It expects Vancouver’s housing starts to drop by a third, resulting in 7,500 jobs lost.
However, CAAMP did see bright spots in the market, particularly Calgary and Edmonton, where it expects to see a modest increase in housing starts and job gains of about 2,500 in both cities.
Not all is doom and gloom in Canada’s housing market, though.
In numbers that seem to contradict those cited by The Economist, BMO put out a survey Wednesday showing the percentage of people planning to buy a home in the next five years remaining steady at 45 per cent.
Most of Canada’s major bank economists have declared a “soft landing” for the market, meaning they don’t expect wide-scale price drops to follow the slowdown in sales over the past year.
But Dave Madani of Capital Economics, which has been bearish on Canada’s housing market, said it’s too early to call a soft landing.
“We don’t expect prices to rebound this year,” he said at the Bloomberg Economic Summit in Toronto, predicting that the slowdown is just beginning.
While CAAMP’s Dunning and other economists lay the blame for the slowdown on Finance Minister Jim Flaherty’s mortgage rule changes last year, others say Canada’s residential property market was on an unsustainable path and would have had to readjust one way or another.
Phil Soper, CEO of Brookfield Real Estate Services, told the Bloomberg conference the mortgage changes didn’t have a “dramatic” effect on the market. He predicted the market would come in for a soft landing.
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