The Canadian Press - ONLINE EDITION

Canadian homes 20% overvalued, more tightening may be necessary, says Fitch

  • Print

OTTAWA - Fitch Ratings says Canada's real estate market is as much as 20 per cent overpriced and cautions the government may need to take more measures to slow down borrowing on homes.

Fitch is the second U.S. financial agency to sound the alarm on Canadian home prices in the past week, with the Morningstar research firm predicting a 30 per cent correction was possible over the next few years.

The latest warning comes as the Teranet–National Bank composite house price index for June showed prices rose 0.9 per cent from May and were up 4.4 per cent from last year.

The year-to-year gain was the lowest in six months, but still more than twice the underlying level of inflation in Canada and above income growth.

Prices were 8.1 per cent higher Calgary compared with a year ago, while Hamilton saw increases of 7.3 per cent and Toronto and Vancouver climbed 6.1 per cent.

But several major markets showed a cooling trend. Prices in Ottawa-Gatineau fell 1.7 per cent compared with a year ago, Quebec City dropped 2.4 per cent and Halifax lost 2.5 per cent.

Whether Canada's home prices are due for a big fall has been a hotly debated topic in Canada for several years, but as yet predictions of a housing bubble about to burst have not materialized.

The majority of analysts, including the Bank of Canada, forecast a soft landing for housing, however, with price increases, sales and starts levelling off or decreasing only moderately. Still analysts such as David Madani of Capital Economics warn the longer the correction is delayed, the steeper the fall will likely be.

Fitch Ratings argues that government efforts to moderate growth by tightening mortgage rules and lending practices have had mixed results, noting that sales and building permits for residential construction have picked up in recent months.

Meanwhile, home prices continue to defy gravity mostly because interest rates are so low.

"We believe high household debt relative to disposable income has made the market more susceptible to market stresses like unemployment or interest rate increases," the agency says in the assessment issued Monday.

"Fitch believes the Canadian government has taken several proactive steps in recent years to mitigate some of the risks to the housing market. However, the long-term impacts remain unclear, and policy-makers may be required to take additional steps over the short term to engineer a soft landing."

Fitch said it was worried because household debt to income has only come down slightly from the 164.1 per cent high reached in third-quarter 2013, and unemployment will likely remain in its current seven per cent range for some time.

Since being named finance minister in March, Joe Oliver has mostly taken a hand-off approach to the housing situation, agreeing with the Bank of Canada that the most likely scenario is a soft-landing.

However, the government has managed to tighten lending at the margins. At the end of May, the Canada Mortgage and Housing Corp. stopped insuring mortgages on second homes and offering insurance on self-employed borrowers unless they have proof of income levels.

Fact Check

Fact Check

Have you found an error, or know of something we’ve missed in one of our stories?
Please use the form below and let us know.

* Required
  • Please post the headline of the story or the title of the video with the error.

  • Please post exactly what was wrong with the story.

  • Please indicate your source for the correct information.

  • Yes

    No

  • This will only be used to contact you if we have a question about your submission, it will not be used to identify you or be published.

  • Cancel

Having problems with the form?

Contact Us Directly
  • Print

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

You can comment on most stories on winnipegfreepress.com. You can also agree or disagree with other comments. All you need to do is be a Winnipeg Free Press print or e-edition subscriber to join the conversation and give your feedback.

Have Your Say

New to commenting? Check out our Frequently Asked Questions.

Have Your Say

Comments are open to Winnipeg Free Press print or e-edition subscribers only. why?

Have Your Say

Comments are open to Winnipeg Free Press Subscribers only. why?

The Winnipeg Free Press does not necessarily endorse any of the views posted. By submitting your comment, you agree to our Terms and Conditions. These terms were revised effective April 16, 2010.

letters

Make text: Larger | Smaller

LATEST VIDEO

Peguis Chief Hudson comments on toddler's death upgrade to homicide investigation

View more like this

Photo Store Gallery

  • MIKE DEAL / WINNIPEG FREE PRESS 060711 Chris Pedersen breeds Monarch butterflies in his back yard in East Selkirk watching as it transforms from the Larva or caterpillar through the Chrysalis stage to an adult Monarch. Here an adult Monarch within an hour of it emerging from the Chrysalis which can be seen underneath it.
  • Challenges of Life- Goose Goslings jump over railway tracks to catch up to their parents at the Canadian Pacific Railway terminalon Keewatin St in Winnipeg Thursday morning. The young goslings seem to normally hatch in the truck yard a few weeks before others in town- Standup photo- ( Day 4 of Bryksa’s 30 day goose project) - Apr 30, 2012   (JOE BRYKSA / WINNIPEG FREE PRESS)

View More Gallery Photos

Poll

Which of Manitoba's new landlord-tenant rules are you looking forward to most?

View Results

View Related Story

Ads by Google