TORONTO, Nov. 20 /CNW/ - Canada's longest housing boom of the post-war
period has come to an end, according to the latest Real Estate Trends report
released today by Scotia Economics. The reversal of fortune has been most
pronounced in the previously hottest markets of Western Canada, including
Calgary, Edmonton and Vancouver. Nonetheless, conditions in virtually all
regions are tilting back in favour of buyers for the first time in years.
    "We argue against taking an overly alarmist view to domestic housing
prospects," said Adrienne Warren, Senior Economist and Real Estate Market
Specialist, Scotia Economics. "This is not a 'U.S.-style' bust caused by
overbuilding, speculative buying and imprudent lending, but rather a cyclical
slowdown accompanied by a valuation adjustment in several large centres where
booming demand conditions and temporary supply constraints led to an
overshooting in prices."
    The report notes key differences in the fundamentals of Canada's housing
market relative to the United States. For one, the inventory of for-sale homes
in both the new and resale market, while moving up, is still well contained
relative to prior cycles. With builders in most jurisdictions beginning to
slow the pace of new construction, and with a low risk of widespread
foreclosures, the Canadian market does not face the massive inventory glut
underlying record-setting U.S. price declines.

    The Canadian housing market in a global context

    The report tracks real house prices across a number of major developed
nations over a 10-year period, coinciding with the latest global housing
cycle, to provide some international context to Canadian price trends. It also
compares a number of other international house price metrics, which taken
together may provide a measure of price risk.
    Home price appreciation in both the United States and Canada has actually
been relatively modest by international standards, totaling a cumulative 50
per cent and 61 per cent respectively. While real prices have declined in
Japan and Germany, the 10-year cumulative price run-up was considerably larger
in Ireland, the U.K., Spain, France and Australia, all of which have
experienced increases upward of or exceeding 100 per cent. While available
data for 2008 varies, real price growth appears to have decelerated sharply or
turned negative in all 10 countries considered, including Canada.
    The report cautions that real price trends are not a particularly useful
guide to future price movements, at least over the short-term. The driving
forces behind the price appreciation as well as current supply and credit
conditions are more important. Record unsold housing inventories, mounting
foreclosures, overbuilding and credit constraints are bigger factors behind
the continuing and steep slide in U.S. home prices than overvaluation, none of
which are major concerns in Canada.
    "There is further downside risk to home prices in Canada, especially in
light of reduced growth and employment prospects," said Ms. Warren. "We
expect, however, that the correction in national average prices from their
late-2007 peak will probably be in the range of 10 per cent-to-15 per cent,
well below the ongoing U.S. retrenchment.
    "Much of this realignment will occur in Canada's three Western-most
provinces, and will leave intact most of the significant price appreciation of
recent years. Longer-term, the process of gradual housing price deflation
globally may well be more pronounced outside of North America, including
Ireland, Spain, the U.K. and Australia."

    Scotia Economics provides clients with in-depth research into the factors
shaping the outlook for Canada and the global economy, including macroeconomic
developments, currency and capital market trends, commodity and industry
performance, as well as monetary, fiscal and public policy issues.