Linda Nguyen – The Canadian Press

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 forecasted 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% in some regions and could fall by as much as 10% in some places.

Comment: And yet, as usual, there is no rationale for that number. Why 26%? Sure, prices might fall here and there, but not anywhere important. Heck, if Moosonee and Prince Rupert each drop 10% over the next 5 years, is that enough to make them right? What happens when Toronto prices are 20-30% higher in the same time frame? Will anyone remember and point the finger of WRONG at them? Except for me that is?

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.

Comment: They say right after mortgage rates drop. And right after predictions of US stimulus funding withdrawal weakening the bond market and thus keeping mortgage rates stable or causing them to fall. How is that I know this and they don’t? Oh yeah, I am not trying to get my name in the news with a dramatic contrarian prediction that is sure to be quoted as the lone dissenting voice against the tide of facts and reality. I guess Capital Economics had their name in the news long enough…

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.

Comment: Which is why we are importing labour from Ireland and other countries. We don’t have enough local workers to fill construction jobs as it is. Were it to ease by 10%, no one would would be out of work.

“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.

Comment: Well duh. If prices fall, people’s net worth falls. Is this what they teach in economics school now? I bet that if the price of cupcakes fell, more would sell. Both are just supposed situations, not something that is actually going to happen. I can also say that IF a meteor hits Toronto, there will be a hole in the ground.

Fitch Ratings said home prices have surged more than 130% since 2001, outpacing income growth by more than 80%.

Comment: Interesting. By that math, then incomes have grown 50% since 2001. Monthly mortgage payments have only grown 23% in the same time frame, so housing is actually more affordable now. Not sure that was their point, but that is what matters at the end of the day.

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.

Comment: Wait a sec hoss. No one but them is “anticipating” this “decline”. It is a possible outcome, a potential future, nothing more than that.

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.

Comment: But that is not what happened, so it is not likely. The market slowed for a year, then went right back to where it was before.

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.

Comment: Bingo! We also did not have the mortgage fraud and financial shenanigans that they did. Totally different.

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% in October from September on a seasonally adjusted basis. But the number was also an 8.2% 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% from October 2012 and the national average price for homes sold in October was $391,820, up 8.5% 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% rather than 8.5%.

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.

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Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto Realtor with Century 21 Regal Realty. He did not
write these articles, he just reproduces them here for people who are
interested in Toronto real estate. He does not work for any builders.
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