The boom has busted in Victoria: here
Finally, a Canadian economist with the gonads to state the obvious: Our housing market will follow the pattern of the American one, which means big price decreases are in the offing. Doug Porter, of BMO Nesbitt Burns, is now echoing what was spelled out in my book, Greater Fool, several months ago. It is inevitable this will happen – sales declines first, price declines second – despite a housing industry trying to squeeze every last drop out of boom times. That it took this long for the reality of this correction to be noted, is the biggest news. With this MSM validation the decline, of course, will accelerate. — Garth
Housing drop looming in Canada
Canadian home sales are down by 13 per cent year-over-year so far in 2008, and price appreciation has slowed markedly to a 1.8 per cent year-to-date gain. When charted out, these data suggest Canada is tracking the U.S. housing market fairly closely, at a two-year lag, said Douglas Porter, deputy chief economist at BMO Nesbitt Burns Inc.
â€œIt’s a bit unnerving to see how Canadian performance is beginning to look like that of the U.S. two years down the line,â€ Mr. Porter said. In the past 10 years, the price of a detached, two-storey home in Canada has risen by an average of 129 per cent, according to a recent study by Royal LePage Real Estate Service. However, this year sales are down, listings are up, and while prices have mostly stayed in positive territory, a few markets have showed signs of cracking.
Last month, three cities posted slight year-over-year declines in house prices â€“ Calgary, Edmonton and Windsor-Essex. In the West, the declines look like modest corrections to markets that got ahead of themselves, Mr. Porter said. More concerning is weakness in cities where economic fundamentals are much less stable, such as Windsor and Thunder Bay, he added.
â€œThe most interesting question is, what will happen to the middle ground? Will cities like Toronto, Montreal and Ottawa, which have fairly robust markets but have not been blessed by a booming underlying economy, end up seeing home price declines, too?â€
Economic fundamentals including strong job growth and low interest rates suggest that Canada is still in pretty good shape, and that declines in this â€œmass of citiesâ€ is an outside chance rather than a probability, he said. So far, Canada is not even close to experiencing the 8 per cent price drop and 20 per cent decline in existing home sales that has taken place in the U.S. this year, but that doesn’t mean there is no cause for concern, he added.
â€œThere are a litany of reasons why the Canadian market is different,â€ Mr. Porter said. â€œBut even a very pale version of what we saw in the U.S. would not be good news.â€