Canadian Economists Cannot Agree on Severity of Housing Market Correction
By Patrick LeBlanc @ Real Estate Daily
January 25, 2018

The Canadian housing market is facing a slowdown and experts cannot agree on its severity. Some think new mortgage rules and increasing interest rates will trigger a sharper housing correction than initially predicted.

Key Takeaways

  • The rise in interest rates could aggravate concerns over high household debt
  • Many experts still believe Canada’s housing market will adjust to changes
  • Canada’s strong economic fundamentals will act as an anchor for the housing market

Brief

Quebec-based credit union Desjardins recent published a report that highlighted concerns over Canada’s household debt and the anticipated market correction. According to the Desjardins economics team, “concerns over high household debt could trigger a sharper housing correction than forecast, and a considerable slowdown in spending.”

Canada’s housing market is in a tight spot because of untamed price growth in recent years. Vancouver is considered the most unaffordable market in North America, and Toronto is not far behind. More than 75% of Vancouver homes cost more than $1 million in a city with a median family income of only $63,944.

The Canadian federal government responded to an overheated housing market with a series of new rules and regulations. A new mortgage stress test, foreign buyer tax, and interest rate hikes were enacted to help cool market.

Most economists agreed with Desjardin’s sentiment that the housing market will take a hit, but some experts think the market will adjust accordingly. Those experts point out that Canada’s household debt is matched by the country’s strong economic fundamentals.

“The international evidence suggests that Canadian household leverage and home prices are not abnormal,” writes Stéfane Marion, and senior economist Matthieu Arseneau. “Our analysis suggests that the ratio of household debt to disposable income in Canada is relatively conservative.”

“Housing demand fundamentals, including low unemployment, strengthening wage gains, aging millennials and increased immigration remain supportive [of market growth],” according the Scotiabank’s economics team.