Canada's Condominium Magazine

Housing market report scoffs at shallow analysis, inadequate data

All the talk in the media about housing market corrections and crashes in cities like Toronto and Vancouver is mostly misinformed, according to Ben Myers of Fortress Real Developments. He means that quite literally. Despite a decade of warnings about such “hot button” issues as the activity of foreign investors in the Canadian housing market, the dangers of mortgage fraud and the problem of overleveraged borrowers, we don’t have the statistical support to really understand these issues. Myers says that makes it “impossible to fully assess” the real threat these activities pose. Based on the limited information that is available, and his own research, published in the spring 2016 edition of The Market Manuscript, he believes that “fears of a major house price correction are overblown.”

The research deals with each of the big issues he identifies. Foreign buyers are not a major presence, but account for approximately 8 per cent of the clients of mortgage professionals surveyed. Mortgage fraud is a concern for more than one-third of mortgage professionals, but very few (4 per cent) see it as a potential catalyst for a housing market crisis.

As for over-leveraged borrowers, their numbers are relatively low, according to his research. Very few mortgage brokers believe that their clients are stretching their budget (8 per cent) or are over leveraged (9 per cent). Citing Canadian financial authorities such as RBC, TD Economics, the Bank of Canada and the C.D. Howe Institute, Myers finds, as they do, that Canadians’ debt levels are “under control and manageable.” Mortgage delinquencies, for example, have remained consistently low in Canada over the past two decades and more, a sign that most homeowners are not in trouble with their mortgages.

Looking at that other perennial favourite topic among media commentators, overbuilding, Myers is dismissive, even scornful of much reporting on the subject. His research, which includes a survey of mortgage professionals and of the general public via social media, found that only a “surprising” 7 per cent of respondents were concerned about overbuilding as a potential trigger for a market correction. “Lumpy data” and ill-informed economists are the likely reason, according to Myers, for much inaccurate analysis of housing starts and overbuilding.

A more likely cause of a housing market correction, given by 42 per cent of respondents, would be the high cost of housing. But again, the Market Manuscript takes a more positive view: notwithstanding that house prices have risen sharply in certain cities, they have done so in part as a consequence of interest rates falling. Analysis of affordability shows that price growth has not been out of line with economic fundamentals.

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Inadequate data make it difficult to accurately analyze housing market risks in Canada, according to report from Fortress Real Development.

The demographic group responsible for most new household creation in Canada is, no surprise here, the millennials, aged 25–34. The demand for homes among this group should remain strong for several years, the report says, based on Statistics Canada projections. For many in this age group, a condominium is the most affordable choice for a first home.

In Toronto, housing market conditions in 2015 were “very good, relatively consistent, and a lot better than many in the industry had forecasted,” says Myers. New home sales were up 4 per cent. Building permits, starts and completions were also up. Unsold supply and units under construction declined. The supply of unsold low-rise homes was at its lowest level since the 1990s.

New condominium sales were “very strong,” reaching the second-highest level on record in the GTA, with new developments continuing to launch at “relatively modest” prices. The Toronto market “continues to defy logic” with over 43,000 new units “easily absorbed” in 2015. Strong conditions are expected to continue in 2016.

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