Marie-Yvonne Paint, a real estate agent in Montreal, has the kind of problem most of her counterparts in the United States can only dream about.
‘We have a shortage of inventory right now,’ said Ms Paint, who focuses on the exclusive and expensive municipality of Westmount. ‘It’s very annoying. We have buyers ready to buy and not much to show.’
Her experience is not an isolated example. Like most of the world, Canada’s real estate market slumped during the recession. But now, instead of worrying about the recovery of the real estate market, some Canadians are concerned about the prospect of a price bubble.
The Canadian Real Estate Association reported that the average price of existing homes rose 19.6 per cent in January compared with January 2009, the latest in a string of substantial gains dating back through last autumn. By contrast, the average price of existing homes rose 2.6 per cent in the US in the same period, according to the National Association of Realtors.
Such drastic percentage gains are not just a reflection of the market’s earlier depths. In some Canadian cities, particularly Toronto and Vancouver, prices appear to be heading towards record levels.
‘It’s no surprise the housing market responded to low interest rates,’ said Craig Alexander, the deputy chief economist of the Toronto-Dominion Bank. ‘The real question is what’s going to happen in the next year. It can’t continue at the current pace, otherwise a bubble will form.’
Canadian homebuyers, of course, are not unique in having access to low-interest mortgages. But Mr Alexander and others attribute the Canadian market’s revival to a series of measures that ensured that the recession in Canada did not turn into a real estate disaster.
Perhaps chief among them is the country’s retail banking system, which is effectively an oligopoly dominated by five national banks, including Toronto-Dominion.
Most of the time, that arrangement is less than popular among Canadians, who think that a lack of competition leads to, among various things, low interest rates on savings and high service fees.
Public resentment has repeatedly caused politicians to block mergers between the banks. But in the lead-up to the credit crisis, the closed-shop nature of banking in Canada proved to be the government’s, and the economy’s, best friend.
Mindful of government oversight, Canadian banks by and large avoided the structured-debt products that imperilled many of their American counterparts. They also maintained comparatively tight controls on mortgage lending to consumers. When zero per cent downpayments on mortgages were widely available in the US, Canadians were typically required to put down at least 10 per cent. American-style amortisation periods stretching beyond 25 years were also relatively unknown in Canada.
‘In Canada, standards got nowhere near as low,’ said Timothy D Hockey, chief executive of TD Canada Trust, Toronto-Dominion’s Canadian retail banking operation. ‘When the crisis came upon us, the standards didn’t have to change.’
One result of that, said Phil Soper, president and CEO of Brookfield Real Estate Services of Toronto, is that the slump in housing starts and existing home prices was delayed by about a year in Canada until late 2008. Then, when interest among buyers began to return last year, Canada’s still-healthy banks were able to provide mortgages, and housing prices were not depressed by a glut of defaulted properties in forced sales.
Source: Business Times, 23 Mar 2010