LORI MCLEOD
Globe and Mail Update
October 9, 2008 at 6:18 PM EDT
The real estate industry has gone into damage-control mode to try to quell fears Canada's housing market could enter into a U.S.-style freefall.
Industry representatives held a conference call Thursday to challenge a recent report by Merrill Lynch Canada Inc. that made headlines by suggesting Canada's housing market could be heading for the same perils as that of the United States.
“We want to draw attention to the fact that despite some recent stories that suggest the Canadian housing market is heading for a crash similar to the States, that just isn't in the cards,” Gregory Klump, chief economist at the Canadian Real Estate Association (CREA), said on the call.
The Merrill report created a stir, even prompting Prime Minister Stephen Harper to weigh in with the view Canada's housing and construction markets remain stronger than those of the U.S.
In a follow-up note Merrill economists David Wolf and Carolyn Kwan said they were not predicting a catastrophe for Canada like the one playing out in much of the United States, but chided anyone who is overlooking the market's risks.
“Given the emerging lessons of the U.S. and U.K. crises, and given the parallels that we believe exist in Canada, we cannot understand how one can dismiss the risk that an adverse feedback loop between the housing market and the financial sector could produce a rather worse outcome for both, in Canada, than the sanguine consensus currently expects,” they said in the follow-up report.
However, Bank of Nova Scotia economist Derek Holt said that while his company has been more bearish on the economy than many others, it had to “draw the line” when it came to the mounting fears about the health of Canada's housing market.
“I certainly don't want to be painted as the optimist .... It's just that we draw the line in terms of making any parallels with the U.S. banking and mortgage market experience,” Mr. Holt said on the call.
Scotiabank expects a continued downturn in the housing market, including a further decrease in construction and resale home sales activity, he added.
Low mortgage rates and more prudent lending regulations have helped prevent Canada from a U.S.-style meltdown, Jim Murphy, president of the Canadian Association of Accredited Mortgage Professionals, said on the call.
This includes the pending elimination of 40-year and zero-down payment mortgages when the government pulls its backing for these products on Oct. 15, he added.
In June, the average price of a resale home in Canada slipped for the first time year-over-year in more than nine years. Since then, the price declines have spread from Alberta into Vancouver and Toronto, causing fear the slowdown is now reflecting weaker economic conditions in addition to overshooting on price.
The Canadian market can't be painted with a broad brush, and varies widely not just by province and city, but even from community to community, Ann Bosley, vice-president of Toronto-based Bosley Real Estate Ltd., said on the call.
Parts of Toronto subject to big price run-ups and bidding wars last year, for example, are cooling more than other areas where price increases were more moderate, she said.
Real estate agents at Bosley have been fighting off misconceptions the Canadian market is currently mimicking that of the U.S., she said.
“My brokerage had calls saying ‘I want to buy a foreclosure.' I said ‘That's nice, go to Buffalo,'” Ms. Bosley said.