Sky high prices in the Canadian real estate market won't be climbing for much longer, says a report by global rating agency Fitch Ratings.The agency forecast Tuesday that home prices across the country are in for a "soft landing" and will either flatten out or slightly decrease over the next five years. It estimates that current prices are overvalued by up to 26 per cent in some regions (21 per cent nationally) and nominal prices could fall by up to 10 per cent over the next five years.
Fitch Ratings said the Canadian economy will be exposed when this happens, as many homebuyers have financially stretched themselves to borrow for their home purchase and will be in for a shock once interest rates start to climb.
It noted a downturn in the housing sector will also impact jobs, as companies have scrambled to build new homes and push construction to record levels in recent years.
Price warning
"With a high level of employment and individual net worth tied to the value of the housing stock, a housing downturn could have serious consequences for the overall economy," it warned in the 12-page report.
Fitch Ratings said home prices have surged more than 130 per cent since 2001, outpacing income growth by more than 80 per cent.
Despite the anticipated decline, the agency said there are several factors that will lessen the impact on the Canadian economy, including the overall low levels of unemployment and proactive government policy.
In July 2012, federal Finance Minister Jim Flaherty introduced tighter rules for mortgage lenders and borrowers — a change that industry says accounted for a slowdown in residential property sales that began the following month and continued through the first part of 2013. The efforts were aimed at avoiding a housing crisis like the one seen in the United States.
Although the policies have been successful at moderating mortgage debt, Fitch Ratings says housing prices still continue to rise.
"Government awareness has appeared to be high, and if the proactive policies specifically targeting a soft landing are successful, then flattening growth or modest decline scenarios become increasingly likely," it said.
Others agree
Meanwhile, another report released Tuesday by the Conference Board of Canada also predicted that the housing market will be shielded from a hard landing.
"A crash would require a significant negative surprise like an interest rate spike or employment collapse. Since no such shock is in the cards in Canada, a housing crash like the one in the U.S. is nowhere near a possibility," said Robin Wiebe, a senior economist at the board's centre for municipal studies.
Its Autumn Metropolitan Housing Outlook found that stability in the housing sector can be attributed to supply continuing to be in line with demographics.
Last week, the Canadian Real Estate Association reported that home resales dipped in October for the first time since February, which some saw as a sign that the housing market is in for a correction.
Transactions fell 3.2 per cent in October from September on a seasonally adjusted basis. But the number was also an 8.2 per cent hike compared with October 2012, when home sales dropped following a tightening of federal mortgage rules.
The association's national home price index also rose 3.52 per cent from October 2012 and the national average price for homes sold in October was $391,820, up 8.5 per cent from a year earlier.
Toronto, Vancouver and Calgary were responsible for much of the increase in the national home price last month. If they were taken out of the equation, the average price was up 4.9 per cent rather than 8.5 per cent.
CREA also said that the hottest markets in Canada so far in 2013 have been Calgary, Edmonton and Vancouver when judged by total sales volumes, which measures both price increases and units sold. On the flip side, the coldest markets were in Quebec City, Saguenay, Que., and Halifax, all registering double-digit declines.
Source: CBC
Author: CP
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