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Canada's housing mirrors troubled U.S. market with two year delay: economist
/ }7 N# V2 O# h4 o5 o& s. K1 g+ n8 uTue Oct 28, 4:48 PM
- S& {% _8 B7 V0 N5 GThe Canadian Press
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# x9 C7 @# {# D; k2 yTORONTO - Canada's housing market is following the same troubled path that eventually led the United States market into a major downturn, suggests Merrill Lynch economist David Wolf in a new report.
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Wolf, who is known for his bearish view of Canada's housing market, said the trend is unravelling with a two year lag, but the similarities are prominent.
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3 U9 z+ N- S& J2 B7 N, M' }6 s"Why the two-year lag? It may be because the Canadian market had more room to run, having remained weaker for longer than the U.S. market through the 1990s," he said in the report released Tuesday.
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9 ~0 ?* i; O8 K4 p  s$ {! N8 {The report notes that U.S. resale home prices accelerated through 2005, peaked in early 2006 and have declined ever since.
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! S. R, U8 Q- o) zMeanwhile, Canadian resale home prices accelerated through 2007, peaked in early 2008 and have been falling.
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The report said new home construction has soared in Canada, but many of the new units remain empty.

In August there were 34,635 units under construction in Toronto and 19,973 units in Vancouver. A decade earlier, the entire country produced a total of 19,965 units.

"It may be because the commodity price boom had kept national income and thus consumer fundamentals stronger in Canada over the past couple of years," said Wolf.

He also pointed out that domestic lending standards were slower to follow the loosening trend that has since affected the United States.

) x. s: t/ N6 B$ X  E4 dIn a controversial report last month, Wolf said Canadian households are so deeply in debt that a "tipping point" is in prospect for the overall real estate market.
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2 w/ e5 @9 c7 Z5 d' c$ `# YHe warned that in Canada "we see some of the vulnerabilities that existed in the U.S. market ... (which) have translated into some pretty nasty market and economic circumstances."
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! k# p6 a% R# [1 P3 xThe pessimistic view, which is not shared by most of Canada's economists, has prompted Canada's real estate industry to try and quell fears the nation's housing market is headed for the same U.S.-style free fall.
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Gregory Klump of the Canadian Real Estate Association (CREA) said Canada "is in the middle of a realignment right now," while Scotia Capital's Derek Holt said recently he believes a "controlled cooling is in the cards."
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CREA said the average price of a resale home across Canada fell by an estimated 6.2 per cent in September compared to the same period last year.
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* c' J( z* x" u) Y$ w+ b2 Z+ sTD Securities said in a report last week that the depth of the correction may have been exaggerated by distorted data.

It said the price drop was led by a 43 per cent plunge in the number of homes sold last month in Vancouver, which is the country's most expensive market.