Is the bursting of a housing bubble in Canada about to blow away the value of your home?
Bunk, says the Conference Board of Canada.
In a report to be released Monday, the Ottawa-based independent think tank says bubble fears are overblown.
That’s an important conclusion not only for homeowners in Canada but also for policy makers in Ottawa.
Some, including former finance minister Jim Flaherty, had expressed concern that years of rock-bottom interest rates were encouraging Canadians to buy homes that were more expensive than they otherwise should be buying or were allowing Canadians in precarious financial positions to take on the liability of a big mortgage.
Flaherty took steps several times to change the rules for government-backed mortgage insurance in order to prevent some from qualifying for mortgages. He also tried to browbeat Canada’s banks into changing their lending practices to make it tougher for some Canadians to buy that first home.
So far, newly minted finance minister Joe Oliver has yet to say if he shares Flaherty’s view of the housing market.
The Bank of Canada, both under Mark Carney and now under current governor Stephen Poloz, have also expressed concerns about the housing market and household debt.
Conference Board of Canada senior economist Robin Wiebe, in an analysis of Canada’s housing market, said “resale markets in major cities are generally balanced.”
Wiebe also notes that ongoing employment and population growth will continue to spur demand for new homes. Demand for new homes, in turn, is a positive for overall growth of the Canadian economy.
Monday’s report from the Conference Board also predicts that the interest rate paid by most Canadians on their mortgages is set to start to gradually rise from 5.24% for a conventional five-year rate to 5.9% by the end of 2014.
“The moderate and gradual increase should give homeowners the time to adapt to the resulting higher mortgage payments,” the report says.
The Conference Board of Canada’s report is a direct rebuke to international groups like the Paris-based Organization of Economic Co-operation and Development (OECD) has warned of the dangers of a Canadian housing bubble bursting.
The Conference Board notes that those who fear a bubble focus on the relationship between house prices to apartment rents and incomes. The board argues a better measure is the relationship between mortgage payments to rents and income. That ratio, the board said “is much less alarming.”