A more stable banking system and consumer base will prevent a housing crisis in Canada even if the country enters a recession, according to officials at the Royal Bank of Canada. For more information, read the following article from Property Wire.
The residential property market in Canada is not at risk of a U.S. 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 RBC.
He and his colleagues are confident that many factors that triggered the U.S. 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 percent of pre-tax income. A standard townhouse is next at 36.9 percent, followed by a detached bungalow at 45.7 percent and a standard two-storey home at 52 percent.
But prices are expected to fall in 2009. ReMax real estate predicts a 5 percent 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 5 to 10 percent 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 percent to $193-billion in 2008, compared to $218-billion in 2007.
Approvals are forecast to fall another 10 percent per cent to $174-billion in 2009 and another 1.6 percent in 2010 to $171-billion. That follows a growth rate of about 11.5 percent annually for the three years ended August 2008.
This article has been reposted from Property Wire. View the article on Property Wire's international real estate news website here.
