The
Canadian housing market is largely immune to the turmoil south of the
border, a major bank has concluded "The fundamentals underpinning
Canada's housing market are still quite strong," said Adrienne Warren,
senior economist at Scotia Economics. "Unemployment is low, immigration
is high and apartment vacancy rates are tight. There is little evidence
of overbuilding or speculative buying. The industry also has relatively
little direct exposure to subprime
lending, with these loans accounting for only about five per cent of
domestic mortgages in recent years compared with about 20 per cent in
the United States. But, Warran
cautioned that, "Affordability is becoming increasingly stretched for
many would be buyers after almost a decade of rising home prices."
Moreover, from a long-term perspective, there is growing evidence of
overvaluation in home prices in some parts of the country, a precursor
to a period of softening conditions. In all but one of 15 cities
examined in a Scotia
report, price levels are above their long-term trend. The national
average deviation at mid-year was roughly eight per cent, however,
there are big regional variations, ranging from just one per cent in Ottawa to 25 per cent in Edmonton.
"At the peak of the prior two housing cycles in 1976 and 1989, national
home prices were 12 per cent and 18 per cent, respectively, above their
long-term trend. The smaller degree of overshooting this time around,
and the sustainability of price appreciation, may reflect in part an
undervaluation of Canadian real estate prices in the late 1990s and
into the early part of this decade." Most major markets in Canada are still categorized as sellers' territory in which prices would be expected to rise faster than inflation, Warren
explains. "The further home prices climb above underlying economic
fundamentals, the greater the risk of an eventual correction," said Warren.
More now own a home
Statistics Canada
reports that a record 68.4 per cent of Canadian households are now
owned by their occupants, up from 65.8 per cent in 2001, and 60.3 per
cent in 1971. The increase in ownership is also attributable to
demographics, as empty nester baby boomers move to condos in droves,
Gauthier said. In other words, more people may own their dwelling, but
those households are increasingly located in condos and townhomes. A recent report on condominium prices in eight major urban areas by Genworth Financial and the Conference Board of Canada indicates demand from aging baby boomers will push up prices in the condo market.
