Saturday, October 30, 2010

Future outlook on Canadian Housing Market

Got the following email this week. 

Another article that came out yesterday, analyzed the prospects of a Canadian housing bubble by not looking for similar underlying reasons that led to the U.S. housing collapse but by comparing against the back-drop of 1985-1989 Canadian housing bubble.



http://www.howestreet.com/audio/Alexandre_Pestov_2010_10.pdf


The key take-away of this article is reiteration of what other articles have also predicted that "home prices will decline, although as not as violently as the home prices in the US did, and then stagnate until fundamentals catch up, similar to the 1990-2000 period".


However what is more concerning is the statement "...upcoming price stagnation should be of the most concern for those whose well-being directly correlates with appreciating home prices. Property developers, real-estate agents, “buy-and-flip” investors and other market participants should take a note and make necessary adjustments."

If you read the attached report and check through the accompanying documents, I find the data a bit misleading.  The first issue is that the data from 1985 to 1989 was a five year period, 2000 to 2010 is a ten  year period.  Comparing the quick five year run up with a slower increase over ten years seems a bit like apples and oranges. 

In the data, there is no consideration of the impact of governmental policy and the implementation of the GST.  These two items lead directly to the slowdown in the 1990s. 

I also found his research was indicating problems in Calgary and Vancouver, but not so much in Ontario.  In the 1990s, Ottawa had three down years, which totals about a 5% drop.  Within three years, the 5% was completely recouped and property values increased.

2 comments:

  1. Hi Greg,

    the email was quite challenging to read in blue text...

    none the less, I think you made some good points here. I agree with your comments on government policy and GST which lead directly to the slowdown of the maret in the 90'S.

    Taking this into consideration I too found the data to be a bit misleading.

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  2. Good point on the blue, changed it to yellow and it looks much better.

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