Wednesday, June 19, 2013

Scotia report counters '30% overvalued' concerns

Flat but levelled – that is how Scotiabank is describing the first quarter of home prices in 2013.

The bank released its new Global Real Estate Trends report just days after the OECD ranked Canada as the third most overvalued market in the world. Scotia's analysis is relatively cheery by comparison.
Its report argues that Canadian house prices have "levelled out alongside the return of balanced market conditions," with inflation-adjusted prices remaining unchanged compared to the same quarter last year.

“Housing demand remains healthy, but has cooled amid tougher mortgage financing rules and slowing employment and income growth,” says report author Adrienne Warren. However, she warned that there is a further downside risk to sales and prices as this market adjustment continues.

Focusing on the Toronto market, the report says that it is correcting in the wake of affordability pressures, inventory build, changes to mortgage insurance rules and more cautious lending policies.

“Sales and construction have already shifted notably lower, and prices are beginning to level out. We expect this adjustment process to continue into mid-decade, with downside risk to prices, particularly in the condominium market where supply additions are expected to outpace underlying demand.”
The rebalancing of the Toronto market will be manageable if new construction slows and population in the GTA continues to grow.

“Low interest rates combined with an easing in prices should maintain overall affordability, though land constraints will continue to pressure the low-rise segment,” noted Warren.

Written by  Grainne Burns

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