August 25, 2017
Checking in On The Crazy Canadian Housing Market
by Guest Blogger
Many industry watchers have had their eyes on the Canadian housing market lately, surely having flashbacks to a similar pattern in the United States ten years ago—just before the bubble burst and caused a crisis from which we’re still (slowly but surely) recovering.
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Per Business Insider in July:
Canada's housing market has been red-hot. On a national level, home prices are up 14.22% versus a year ago and 76% since the world began to emerge from the global financial crisis in March 2009, according to the Teranet-National Bank House Price Index. Some local markets, like Hamilton and Toronto, have seen prices soar more than 25% year-over-year.
And in June, from Bloomberg:
On a real basis, Canadian housing prices experienced a much smaller, shorter decrease in prices during the financial crisis and a much larger, longer increase in prices during the recovery. When you couple this unfathomable rise in housing prices with near-record high household debt-to-income ratios, the Canadian housing bubble starts to look scary should the tide turn.
As we remember well, the 2008 crisis in the U.S. was the biggest disruption to the economy since the Great Depression. It took nearly a decade before the building and construction industry came fully back to life. Architectural and construction jobs took an enormous hit, and its effects on window and door manufacturers are still being felt today.
So, it’s logical that we keep our eyes on what’s happening in Canada. But there are a few key differences that indicate the comparison isn’t a direct one.
First, Canadian lending standards are far more stringent than those in the U.S. at the time of the crash. That’s by design, and those standards have in fact been tightening ever since the financial crisis, as additionally noted by Business Insider. As such, delinquencies on mortgages occur at a far lower rate in Canada than the U.S.
Second, the Canadian market has in fact showed some signs of leveling off over the past few months. Throughout July, home sales throughout the country dropped 2.1% in comparison to the previous month, and 15.3% below March, the record high for activity. This appears to be indicative of a “soft landing,” according to some economists. “Housing market developments in July are consistent with our view that Canada’s market is in the process of moderating to a more sustainable level of activity,” economist Robert Hogue told the Financial Post.
As it stands right now, fears of another catastrophic bubble burst might be assuaged. But it’ll be worthwhile to keep tracking the market throughout the remainder of the year.
Questions or comments? Contact me directly at Larry.Johnson@Quanex.com.
August 25, 2017 by Guest Blogger
Filed under: Canada