From Canadian Press…
The price of Canadian real-estate has been the subject of much debate, with some arguing that there’s a potential bust in the making and others countering that most local markets, with a few exceptions, home affordability has improved.
The report stresses that a U.S.-style bust in the housing market is unlikely, but a correction would still weigh on the economy by dampening consumer spending and construction activity and jobs.
“Staff estimates that a 15 per cent decline in house prices would reduce the ratio of household net worth to disposable income by 45 percentage points, and could trigger a decline in private consumption by over 1.5 per cent,” the report states. Consumer spending represents about half of Canada’s gross domestic product.
The IMF notes that Ottawa has attempted in the past to cool the housing market by tightening conditions on mortgages.
It said it was told by “authorities” they would consider additional measures should borrowing by households, which has been slowing of late, return to unsustainable levels. Options include increasing the downpayment from the current five per cent for new mortgages, and requiring lower monthly payments as a percentage of income.
It is not the first time the IMF has flagged Canada’s hot housing market, where average prices climbed by 41 per cent in British Columbia and 29 per cent in Ontario since the recession.
Nor is the IMF alone. The Bank of Canada has repeatedly cautioned prospective new home owners to guard against being lured by record-low interest rates, which makes homebuying more affordable. The central banks warns rates, and hence mortgage payments, will eventually increase.
The IMF also recommends that the Canadian Mortgage and Housing Corp., a key backstop to the housing market, undertake a review of its risks. The CMHC, a federal Crown corporation, is the country’s main insurer of residential mortgages.
The report stresses that it is not forecasting a severe correction in the housing market, or a significant downturn in Canada’s economic performance.
The IMF’s base case for Canada still sees it on path to be near or at the top of the class in the G7 group of large, industrial economies.
Canada’s economy is projected to grow by 2.2 per cent this year and a further 1.9 per cent next year, modest expectations that are in line with other forecasters, including the Bank of Canada.
Under this most likely scenario, the unemployment rate will average 7.2 per cent next year, and seven per cent in 2013, the report predicts.Read more: http://www.ctv.ca/CTVNews/TopStories/20111222/imf-warns-household-debt-housing-prices-111222/#ixzz1jZV6Kua9