Anu Bararia – Reuters

The risk of a property market crash in Canada has not ebbed, according to an increasing number of analysts polled by Reuters who said chances of a steep fall in prices have increased in the past year.

Comment: And yet they are proven wrong by ever-increasing prices. There is simply NO mechanism by which prices could fall. Economy is strong, demand is strong, supply is low, building is steady, mortgage rates are low, etc. There is nothing at all out there that could exert downward pressure on prices.

Still, the survey medians showed house prices will likely rise more than earlier expected at least until 2017, reflecting ongoing reluctance by forecasters, many of whom work for mortgage lenders, to predict negative returns on property.

Comment: Huh? You say analysts say a drop in prices is more likely in the first paragraph. Now you say forecasters don’t want to predict a price drop. Those two statements are exclusive.

This year Canadian home prices on average will appreciate by 5% followed by a 2% rise in 2015 and then again in 2016 after doubling in value over the past decade.

Comment: Hee hee. They always say that. Well, last year rose 5%, but next year will be less. Then next year is 5% and they say that the next year will be 2% or less. Then it is 5% or so again… and so on and so on.

But seven of 20 respondents in the poll conducted Aug 19-26 said the threat of a property market meltdown had intensified over the past year, especially in Toronto and Vancouver, up from five of 21 in the May poll.

“[The] risk has increased due to house price increases significantly exceeding income growth and the oversupply of condos in downtown Toronto,” said John Andrew, professor at Queen’s University.

Comment: But monthly income growth has actually OUTPACED monthly mortgage costs. Annual income to total price has been proven to be a useless measure. And there is no oversupply of condos in Toronto. Not when up to 80% are sold before a crane goes up and 96.5% sold by the time the condo corp registers. And not when resale condo prices rose almost 5% last month and sales rose more than 6%. Yeah, there certainly must be more than demand warrants…

Canadian households on average hold debt worth more than 1.5 times their income and when mortgage costs increase once the Bank of Canada begins raising benchmark interest rates, it will make that burden even heavier.

Comment: But that has dropped from almost 1.7 times income last year. Which is good news.

The BoC will probably raise rates in the third quarter of 2015, a Reuters poll showed on Tuesday. “Lower mortgage rates in the spring and summer have enticed more marginal home buyers who ultimately won’t be able to carry heavy debt load in the future when rates rise,” said David Madani, Canada economist at Capital Economics.

Comment: Probably not. Not until a lot of the rest of the world sees marked improvement. And Mr. Madani forgets, yet again, that rates rising only affect those needing a mortgage at that moment. If I lock in for 5 years tomorrow, rates could hit 10% next year and not affect me. It only matters when I have to renew.

Still, the medians suggest prices will not decline nationally, at least not until 2017 – the end of the polling horizon. Even in Toronto and Vancouver, two of the country’s most expensive markets, prices are not expected to fall.

Many are of the view that prices will only cool, dodging a U.S.-style nosedive where property prices fell by more than a third, leaving millions of Americans in negative equity.

Comment: Can we stop making that comparison? If you understand what happened in the US, you would not say that. If you don’t know what happened, then don’t say it, because you don’t understand.

Thirteen of 20 participants said Canada’s housing boom is different from other real estate booms and is therefore unlikely to end in a crash.

Comment: Amen!

“The risk of a crash is negligible, based on my expectation that any sustained increase in mortgage interest rates will be minimal – at most half a point by the end of 2015,” said Canadian housing economist Will Dunning.

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

Laurin Jeffrey is a Toronto real estate agent 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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