Sunday, 17 February 2013

A Summary of the IMF's Survey of Canada's Economy and Housing Market

The International Monetary Fund recently released an economic report on Canada that included an analysis of Canada's housing market.  Based on a detailed study that included immigration trends, household income, mortgage rates, and the rental market, the IMF concludes that Canada's housing market is overvalued by 10-15% (as of the third quarter of 2012).  While the report suggests that there has been some overbuilding, it concludes that excess supply remains modest.  

Overall, the authors do not express any particular alarm.  While they cite downside risks, their "baseline" scenario is a "soft landing," where nominal house prices are flat, or down slightly, over the next few years, with inflation slowly closing the gap between price and value.  While reduced housing starts and softening prices will drag on economic growth, it will not dramatically reduce expansion.  The (mostly) responsible lending practices and homeowners' significant equity mean that it's unlikely Canada will suffer from a US-style housing crash, the report concludes.

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