Home prices well above long term trend.

Breaking news from the Globe and Mail: in all Canadian markets (with the exception of St. John’s) current inflation-adjusted price levels are well above their long-term trend. This news from a report issued by the Bank of Novascotia.

The current Canadian housing boom, which began nine years ago, has been the longest of the post-war era, with cumulative price gains of more than 60 per cent, the Scotiabank report said. And although the housing fundamentals are solid in Canada because of low unemployment, high immigration and tight apartment vacancies, years of relentless house price increases mean affordability is waning just as risks to the economy mount.

“There is little doubt that current trends are unsustainable,” Ms. Warren said. “Affordability is becoming increasingly stretched for many would-be buyers after almost a decade of rising home prices. More recently, economic risks have increased in the wake of the intensifying financial market turmoil stemming from the U.S. subprime mortgage problems.”

Now before anyone panics here’s the positive spin:

To be clear, Ms. Warren is not predicting a Canadian housing collapse, but rather a cooling in price gains. Nationally, she expects prices will rise 10 per cent this year, slow to the “high single digits” next year, and eventually fall back in line with the rate of inflation, which would put them between 2 and 2.5 per cent.

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Gianni33
Gianni33
13 years ago

They were running a CKNW story on this and I was surprised because they weren't necessarily talking about the housing market in Canada slowing down or cooling, they were talking about a correction.

aetakeo
aetakeo
13 years ago

Anybody know easily what deflated by CPI means? My understanding is that the Vancouver benchmark home is 200K over their, uh, "Price Level".

Ulsterman
Ulsterman
13 years ago

NYT article showing one of the US leading homebuilders is offering 25% discounts on new homes. 25%!http://preview.tinyurl.com/ywwbf3

freako
freako
13 years ago

Vancouver 13% above trendline my ass!

Clarke
Clarke
13 years ago

Hmmm. The report is "not predicting a Canadian housing collapse, but rather a cooling in price gains"I believe this can be referred to as "whistling while walking through the graveyard". They could not even choke out the suggestion of modest price decreases……

misanthropic curmudg
misanthropic curmudg
13 years ago

<a href="http://tinyurl.com/2zqdgjhttp://tinyurl.com/2zqdgj<br />It's the second bank report in two days to suggest that the housing boom could be faltering. drums a gettin' louder

tulip-Mania2
tulip-Mania2
13 years ago

The Nova Scotia report claims Vancouver shows only a slight deviation from the long term price trend, which the author speculates it is because RE was undervalued during the 90's.One would almost suspect the Bank of Nova Scotia sells mortgages.And further confirms my suspicion that banks and CMHC forecasts are done with a template, which always forecast high single digits during economic expansions, and 2% to 3% price appreciations during recessions.Never have they forecast a price decline.

Patiently Waiting
Patiently Waiting
13 years ago

that is in retrospect

Patiently Waiting
Patiently Waiting
13 years ago

Hmmm I think they may look at this month as the start of the nationwide recession. Perhaps next month.

Michael
Michael
13 years ago

Sure parts are, but I'm talking the country as a whole, I guess technically by what I'm saying it won't be a recession yet, with a recession defined as two negative growth quarters in a row. For March 2008, when people look back at that month they will see that as a start of a recession. The market might not even say they're in a recession until the start of the third quarter.

Patiently Waiting
Patiently Waiting
13 years ago

michael, some parts of the US are already in recession. eg. Florida

Michael
Michael
13 years ago

Well at least the banks are talking about a slow down in prices. I think saying 2% price increases after this huge runup should be translated as 20% drop in prices year over year for 2008 :)We've already seen estimates on here for how much of a decrease we are anticipating, but here's a new one; When will the US go into a recession? I'm saying roughly March 2008. From now until January 2008 millions of ARMs will reset and force millions of families to lose their homes.

tulip-Mania2
tulip-Mania2
13 years ago

“While I was aware a lot of these practices were going on, I had no notion of how significant they had become until very late,'' Greenspan said in the 60 Minutes interview. “I really didn't get it until very late in 2005 and 2006,'' as he was about to leave office.Greenspan had no notion?This guy was at the switch of the world's biggest economy's money supply machine.What else didn't he "get"?Tick Tock, Tick Tock

mohican
mohican
13 years ago

Scotiabank's analysis leaves a lot to be desired but they are at least talking about the negative effects of high house prices and the potential for declines.

the pope
the pope
13 years ago

Thanks for the pdf link condohype, and a hat-tip to Marco for the original link!

condohype
condohype
13 years ago