Canada's Mortgage And Housing Markets Settle With A Soft Landing, Not A 'Resounding Thump'

Recent survey results on the attitudes and opinions of Canadians in respect of Canada’s mortgages and real estate markets show that overall Canadians remain confident and their expectations about the Canadian housing market have not been unduly swayed by the spate of recent - generally bad - economic news about U.S. housing, mortgages and real estate trends.

Maritz, a leading Canadian public opinion and mark research firm conducted the survey on behalf of the Canadian Association of Accredited Mortgage Professionals (CAAMP). Its intent was to gauge consumer attitudes in wake of a rising economic uncertainty in Canada, “in reaction to (the) evolving economic downturn in the United States.” The survey results are summarized in the CAAMP’s recently published report, Housing and Mortgage Market Trends in Canada.

“Few Canadians,” according to the CAAMP’s Chief Economist, Will Dunning, “have high levels of concern” about the shape and direction of Canada’s mortgage and housing markets. Mr. Dunning notes that there is only a “minor level of concern about US events,” principally because Canadians tend to “make their housing market decisions based mainly on their personal circumstances.”

“Most Canadians.” According to Mr. Dunning, “have very good reasons to be positive about their personal circumstances, and their communities. “ He concludes that this consumer outlook, “should give us confidence about the housing market outlook for the remainder of 2008 and into 2009.

This seems to be in accordance with the views recently expressed by Scoitiabank economist, Adrienne Warren, of Scotiabank’s Global Research Group. In Scotiabank’s Real Estate Trends report released on May 15, 2008, Ms. Warren notes that there is “convincing evidence that Canada’s housing market has come off the boil.” Yet, she does not see indications of a U.S.-style housing market meltdown. Quite the contrary.

Unlike the hyper-inflated, speculative bubble that the U.S. housing market became prior to its losing the wind out of its sails with the breakdown of the American sub-prime mortgage market, the economic fundamentals appear to be much, much better in Canada.

Ms. Warren notes five key indicators that should bolster the continuing confidence that Canadians have according to the CAAMP’s numbers:

1. Canadian home prices are not substantially overvalued. Ms. Warren notes that recent estimates from the International Monetary Fund place Canada “at the bottom rungs of international home price overvaluation.”

2. There is scant evidence of the speculative home buying that will often accompany the late stages of a real estate and housing boom.

3. Canada’s real estate market is not overbuilt. (Probably due, Ms. Warren concludes, “to a more cautious approach among builders,” resulting from tighter lending guidelines and higher construction costs in Canada versus the U.S.

4. Households are not overleveraged, and “mortgage carrying costs as a share of disposable incomes are historically low.” And, finally:

5. The overall quality of the Canadian mortgage market is quite sound. “Canadian lenders have maintained conservative loan qualifying criteria in recent years,” despite the introduction of new and innovative mortgage products.

Scotiabank’s economists are thus predicting “a soft landing for the Canadian housing market, with somewhat lower sales and construction, and a period of relatively flat inflation-adjusted home prices.”

Ms. Warren and the folks at Scotiabank’s Global Economic Research Group are expecting the volume of housing sales in 2008 to fall about 15% short of 2007’s record-breaking clip, with home prices to increase on average by about 5%. It is predicted that, “Price gains should slow further in 2009 with the return of a ‘balanced’ market for the first time in a decade.

That sounds like a soft landing for the Canadian housing and mortgages market, unlike the resounding “thud” whose reverberations we heard and felt here in Canada when the U.S. housing market cratered earlier this year. Fortunately, as the CAAMP data show, we Canadians are a prescient, as well as fiscally conservative lot, not making our decisions and forming our attitudes on what we see happening on our southern border, but rather in our own communities. There is then, one would suppose, great truth not only for Canada’s varied real estate markets but also for the Canadian mortgage market, to that timeless real estate sales mantra: “Location .. . Location .. . Location.. .”