Canadians have liked to talk about almost nothing else for the past year and a half except for the state of our housing market, especially those in Vancouver and Toronto. Now the Organization for Economic Cooperation and Development has also chimed in on the conversation, saying that these markets are highly overheated and that as prices in these markets only continue to rise, it could pose a threat to the Canadian economy.
The report created by the OECD first praised Finance Minister Jim Flaherty for the work he’s been doing to keep Canada’s market from bursting. Flaherty has cut amortization on government-insured mortgages down to only 30 years, reduced the amount people can borrow with second mortgages, and has also eliminated government insurance on HELOCs. These, the report says, are all reasons why Canada hasn’t felt the collapse seen throughout much of the rest of the world. But, it warns, there is still work to be done.
“Indeed, the absence of a real estate market collapse is an important reason for Canada’s relatively good economic performance during the crisis. While there are some signs of market imbalances, they do not appear to be widespread but are concentrated in certain segments of the market (condominiums) and certain locations (Toronto and Vancouver.) In particular, the stock of unoccupied multiple units has swelled, even after accounting for increase in multiple units in the market.”
Sounds encouraging overall, but the last portion of the report is just what Jim Flaherty has been talking about with an overstock of condos, especially in Toronto. Flaherty has also spoken in the past about how he’s worried about “the last Toronto condo buyer.”
But, there is more we must watch for, too. One of those, says the report, are rising home prices. “Canada experienced a significant increase in house prices in the run-up to the 2008 crisis, but unlike in many countries with a similar experience, notably the United States, Canadian house prices have continued to rise,” said the report.
OECD also touched on our investment real estate market; and those who have been worried about any signs of slowing can rest easy. As the report says, “Residential investment declined only slightly as a share of output during the global financial crisis and has since rebounded to close to pre-recession peak and looks set to rise further, at least over the short term, given the latest figures on housing starts.”
Those starts as we just reported, were well below the averages we’ve seen in past years. Perhaps good for the Toronto and Vancouver markets, that are seeing a surplus; and giving investors even more units to choose from. According to the OECD, Canada may not be in that bad of shape after all!
