Transcript: Canada’s Housing Market – Tough Times Ahead?
Canada’s Housing Market - Tough Times Ahead?
Deputy Chief Economist,
CIBC World Markets
“There's no question about the fact that the housing market is changing, you know, we talk to people in New York and Europe they are convinced that we are going to crash when it comes to the housing market because A, affordability, clearly we have an issue when it comes to affordability. And then we have a situation in which too many things are happening at the same time. We have interest rates rising. We have mortgage rates rising and we have the regulators, OSFI, making it more difficult for first time homebuyers to buy. So we have a lot of things happening at the same time, and that's why I believe that today, we are facing the biggest test when it comes to the housing market since 2008.”
Housing poised to slow down
“I think that the market will slow down. There is no question about it. The most important issue is really not higher interest rates. It's really the regulations, the qualification rate. Basically, now you have to qualify 200 basis points higher than before. This means that 12 percent of the Canadian market will not qualify. Clearly people will go to some other alternative lenders. We are transferring risk from the regulated segment of the market to the unregulated segment of the market. We are transferring risk from where there is light to where it's dark and that's something that will impact the market. But overall, regardless of where this money is going, the market is slowing down. We are seeing sales slowing down. This is just the beginning. So I believe that over the next six months, this market will slow down as I said a significant test. I don't think that that will derail the market. There is still enough demand in the system and not enough supply. So from a long-term perspective I still believe that places like Vancouver and Toronto will remain extremely expensive and will become even more expensive. But in the short term for the next year or so, this market is facing this test.”
“Clearly when you talk about the Canadian housing market you really have to talk about Toronto, Vancouver versus the rest. Now we're seeing Montreal actually taking off a little bit. Those are the Toronto refugees, if you wish, namely all those foreign investors that are now taxed in Toronto or Vancouver. They find their way in Montreal. So we actually see a situation in which the trajectory in Montreal is improving, places like Calgary starting to improve because of the swings in oil prices and other positives. But overall if something bad happens, it will be in Toronto or Vancouver.”
Watching Toronto’s condo market
“Especially in Toronto, the condo market is really the big story and if you want to understand the condo market you must understand investors in that space. And when I say investor, I don’t mean foreign investors, I mean domestic investors. One half of the condo space in Toronto when it comes to new sales – investors, and 45 percent of those investors are now in negative cash flow. Basically they lose money. So the question is, what happens now with interest rates rising they will lose even more money. Maybe they will start selling. Maybe they will not be buying. Our research suggests that, yes it will slow down the market, but I don’t see this factor derailing the market by any stretch of the imagination.”
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