17 August 2010
The Main Items
• Today’s Canadian housing pricing is changing, and we can expect a moderate price decline in the next year. The affordability level decreased during the house price wave of late 2009 and early 2010. The current level of household debt shows the necessity for the households to slow their borrowing – it will also slow home buying. Today we see that housing is 10-15% overpriced, that’s why there is a possibility of 10% decline in prices.
• Yes, a pull-back in prices and sales is quite typical in such situation, but July’s decline shows even unique factors. For example, a heat wave in the Eastern part of the country can be one of the reasons for home shopping decline.
• Another thing is July harmonized sales tax (HST) implementation in Ontario and B.C. Though existing homes sales are not taxed, some of the previously untaxed housing-related services now fall under the HST. Moreover, some homebuyers mistakenly believed they can save money buying a house before HST implementation. But they didn’t understand they could overpay during that rush.
• We do not view today’s price correction as a housing crash. Canada did not have the “housing bubble” trouble, when housing was overpriced.
The structure of Canada’s mortgage institutions also has changed – the test for mortgage borrowers now is more complicated and strict.