Canada housing market still has legs, crash fears low: poll

Wed Jun 11, 2014 12:20pm EDT
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By Andrea Hopkins and Deepti Govind

(Reuters) - Canadian house prices will continue their upward march, according to a Reuters poll, whose respondents said tighter regulation and conservative lending practices mean a U.S.-style crash is unlikely.

The survey of 25 forecasters found that while most said house prices were slightly overvalued nationally, medians suggest they will still rise 3 percent this year although rising interest rates will then take some momentum out of the market.

Despite homebuilding and sales slowing - and prices lag a slowdown - 12 of 21 analysts surveyed said the housing market hasn't peaked. Three did say it was likely to do so this year and two said it would peak in 2015.

Authorities outside Canada, including the IMF and OECD, have raised alarm bells about the appearance of a bubble in Canadian housing and the potential for a crash but the country's lenders and real estate players have repeatedly said Canada's conservatism and regulation will prevent a bust.

"The Canadian housing boom rests on more solid regulatory and mortgage lending practice foundations than the U.S. boom was," said Robert Hogue, senior economist at Royal Bank of Canada, one of the country's biggest mortgage lenders.

"The U.S. downturn started because of poor lending practices and morphed into a full-blown crash because of the twin blows of financial market meltdown and severe economic recession. While the Canadian market certainly isn't immune to a downturn - in fact, it is quite likely over the medium term - the odds of a U.S.-style crash are low."

The poll consensus forecast Canadian house prices to rise 3.0 percent in 2014, 1.0 percent in 2015 and 1.5 percent in 2016. That compares to a February consensus of a 2.2 percent rise in 2014 and a 1.0 percent rise in 2015.

Canadian house prices have risen 32 percent in the five years since April 2009, when the market dipped slightly amid the global financial crisis, according to the Teranet-National Bank House Price Index. Prices in Toronto are up 48 percent in the same five-year period.   Continued...