Everyone knows that housing markets are crashing and burning all over the place: the US, the UK, Spain, and many more besides. But that's not happening here:
Although housing starts in the US are about half of what they were two years ago, they are more or less holding up in Canada. And new house prices are still rising.
That's hardly a justification for complacency, of course; a few years ago, things looked just as rosy in the US. But the IMF's survey of world housing markets (pdf) has an encouraging finding: Canada's housing prices are lower than what a model based on market fundamentals would predict:
The housing sector has been an important source of growth over the past few years in Canada and elsewhere. But the difference is that housing market activity in Canada doesn't appear to have been built on a bubble, so there's reason to hope that this sector will continue to perform well.
This is yet another reason why the Bank of Canada should be cautious in how it manages interest rates: five-year mortgage rates are now back down to what they were before the subprime crisis hit. There's not much slack on the supply side of the housing market, so the only effect of an aggressive reduction in interest rates will be to drive up prices - and perhaps start the sort of bubble market that we've been able to avoid until now.
I was doing some searching and came across your blog. Good to have a comparison between US and Canada. Well written and glad I randomly found it!
Posted by: Pasadena MLS | September 24, 2008 at 07:59 PM