Housing market not in free fall, report argues

John Morrissy, Financial Post · Wednesday, Sept. 8, 2010
OTTAWA -- Canada’s cooling housing market continues to put the brakes to residential building plans in Canada, although the
slowing trend in no way signals a U.S.-style housing free fall, the Conference Board said Wednesday.
The Ottawa-based think-tank weighed in on the housing-bubble debate on Wednesday, after Statistics Canada released data showing
the value of building permits for residential construction fell for the fourth straight month in July.
The 2.4% decline, to a monthly rate of $3.5-billion, follows similar data showing housing starts and resale activity in Canada
declining for months now, along with reports arguing that Canada’s housing market is a bubble waiting to burst.
Not so, the Conference Board of Canada argued in a report Wednesday.
“The housing market has lost its lustre. No doubt about it,” said Mario Lefebvre, the centre’s director for municipal studies.
“However, this will not lead to a free fall for Canada’s housing market. This country will not experience home-price declines to the
tune of what we have witnessed in the United States over the past few years.”
Signs of a slowdown were unmistakable in Statistics Canada’s report. It showed weakness in residential permits was much more
broadly based than in the nonresidential sector, with declines registered in six of 10 provinces, said Scotia Capital economist Derek
Holt.
Yet, he added, the report “is directionally in line with expectations for softer housing markets,” and that the number of residential
permits “nonetheless remains 31% higher than a year ago.”
Mr. Lefebvre conceded in his report that the next few months will be weak, thanks to a slowing economy, the arrival of the
harmonized sales tax in Ontario and B.C., declining consumer confidence, European debt worries and a jobless recovery in the U.S.
At the same time, home prices now average more than $300,000 in Vancouver, Edmonton, Calgary, Toronto, Ottawa and Montreal
— far above the $150,000 to $200,000 historical average — according to a recent report from the Centre for Policy Alternatives
Canada’s cooling housing market continues to put the brakes to residential building plans in Canada Mark Blinch/REUTERS
which said those markets have all the hallmarks of an “accident waiting to happen.”
But Mr. Lefebvre argued the country will only see a pause in home-price growth, with some possible small declines in a few markets.
Mr. Levebrve said prices have held up despite declining resales because those sales “are coming off incredibly high levels in most
markets — levels that were simply not sustainable.”
The board said it does expect housing starts to decline. But like the resale market, this will mark a return to more normal levels
rather than a collapse in the market, which, in the case of the U.S., was the result of laws that allow mortgage deductibility for tax
purposes and the “ring-fencing” of mortgage debt, which prevents lenders from pursuing other assets of a mortgage holder, the board
said.