Sunday, January 13, 2013

Will 2013 be the year of the Big Chill? A Bank of Canada report suggests it may be a national priority to engineer a significant downward correction in home prices

Interesting article in the Globe and Mail on Friday which outlines "Why lower home prices are a national priority."

Apparently the Bank of Canada published an interesting study this week, a study which found the recent new, tougher mortgage-lending standards put in place last summer have done a credible job of putting the brakes on Canadians household debt – but only to a point.
The Bank of Canada’s study suggests that to take the next big step – actually reversing the course of household debts, sending them lower – policy makers are actually going to want a significant downward correction in home prices.
There's a jolting statement from a Bank of Canada study. They are actually saying that the next big step for policy makers is a significant downward correction in home prices!

A substantial downturn in prices – say, 10 to 20 per cent – would, in theory, not only reduce mortgage debts for new home buyers, but, significantly, push down non-mortgage debt to the tune of 4 to 8 per cent. That would get Finance Minister Jim Flaherty and Bank of Canada Governor Mark Carney a lot closer to solving the country’s household debt problem, reducing what is considered a serious risk to the stability of the Canadian economy.
As we mentioned yesterday, some real estate agents have already admitted some segments of the Vancouver market are already down 25%.

Will 2013 bring a further reduction of 20% nationally, potentially 25-30% locally?
In the long term, this is the price to pay to get Canadians back living within their means, and the economy on more solid footing. But in the nearer term, the medicine could well feel worse than the disease.
How's that for a chilling proposition? Still think that now may be the time to jump into the market?


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  1. Our dear leaders knew they were only delaying the inevitable when they bought $800 billion in mortgages and relaxed lending standards.
    They held the collapse back by 3 or 4 years for what?
    Why?Who made out like bandits?The banks!
    SO we are just a branch office of the blood-sucking squid from Wall Street.
    Who can be proud of being Canadian now?We're not so different.
    Particularly with that warmonger Harper,the new poodle to the USA,building his own little global empire.

  2. Uncle Ben south of the border is still buying $45Billion in mortgages a MONTH!
    And how many of those are now empty lots in Detroit?

  3. Oddly enough, a further 30% drop still leaves houses way over what would be considered sustainable according to household income. Take Victoria bc for example. Decent bungalows now cost near $700,000. A 30% drop is $210,00 bringing the price to $490,000. Household income is $80,000. So six times household income is still only $480,000. Rather high in that sense. So to me, a drop of 30% more still leaves homes on the high side of what is sustainable over time. Not unreasonable at all. Rather overdue.

  4. It looks like this is exactly what policy makers are trying to achieve. In April of last year, Jim Flaherty stated "It will mean that some people will not buy into the market. It will also mean that some people will buy less into the market… so they’ll buy a less expensive home, or less expensive condominium. Good. I consider that desirable."

    And Mark Carney said the new rules were needed to "reduce the number one domestic risk to the economy". I see bulls frequently theorize that the gov't would never dare implement policies that may reduce the price of real estate. Perhaps it's time to rethink those assumptions.

    Lower prices are a feature, not a bug.

    h/t VREAA

    Oh, and just for fun, here's a bonus quote from Cam Muir: "The Toronto market is the only market in Canada that really showed significant acceleration on the pricing side."

    Cheers - nobody you know

  5. Overheard here on the island at work...'Got a killer deal. $480k for a place that was listed originally for $789k and assessed @ $707k just this week....."


  6. 10-20% is just a start.

    When we see 40-50% in Vancouver, we'll still have 10-20% to go.