Canada ‘won't suffer us meltdown'

The residential property market in Canada is not at risk of a US style meltdown even if the country slips into recession, it is claimed...

Property prices are falling but this is merely part of a cyclical downturn and the market is expected to hold up even if a sluggish economy threatens income growth and erodes consumer confidence, according to Robert Hogue, Senior Economist at Royal Bank of Canada.

He and his colleagues are confident that many factors that triggered the US housing collapse are either absent or of much lower significance in Canada.

He pointed out that sub-prime business remains marginal in Canada, banks are stable and households are generally not overstretched financially.

He also said speculation in the housing market is more subdued and these factors should prevent housing markets from 'spiralling down even as the Canadian economy slips into recession.'

The latest RBC affordability index shows a standard condo to be the most affordable property in Canada, requiring 31.4 per cent of pre-tax income. A standard townhouse is next at 36.9 per cent, followed by a detached bungalow at 45.7 per cent and a standard two-storey home at 52 per cent.

But prices are expected to fall in 2009. ReMax real estate predicts a five per cent fall across the country by the end of 2009. The biggest drops are expected to come in major cities.

'The reason is purely consumer confidence, it's shaken terribly right now and there are lots of questions about job prospects,' said Elton Ash, a ReMax Regional Vice-President located in Western Canada.

Adrienne Warren, a Senior Economist at Scotiabank, said the bank's economists are predicting prices to end flat across the country this year compared to 2007 and fall by five to 10 per cent in 2009.

'The big risk to the Canadian housing market right now is a more significant recession and more significant job losses as opposed to mortgage-specific related problems we are seeing in the US. The price declines are driven by more supply and fewer buyers,' she said.

The Canadian Association of Accredited Mortgage Professionals predicts mortgage approval activity, including new mortgages, transfers and refinancings, to fall nearly 12 per cent to £108.4 billion in 2008, compared to £122.4 billion in 2007.

Source: www.propertywire.com