Thursday, September 13, 2007

Home prices well above long term trend.

Breaking news from the Globe and Mail: in all Canadian markets (with the exception of St. John's) current inflation-adjusted price levels are well above their long-term trend. This news from a report issued by the Bank of Novascotia.

The current Canadian housing boom, which began nine years ago, has been the longest of the post-war era, with cumulative price gains of more than 60 per cent, the Scotiabank report said. And although the housing fundamentals are solid in Canada because of low unemployment, high immigration and tight apartment vacancies, years of relentless house price increases mean affordability is waning just as risks to the economy mount.

“There is little doubt that current trends are unsustainable,” Ms. Warren said. “Affordability is becoming increasingly stretched for many would-be buyers after almost a decade of rising home prices. More recently, economic risks have increased in the wake of the intensifying financial market turmoil stemming from the U.S. subprime mortgage problems.”

Now before anyone panics here's the positive spin:
To be clear, Ms. Warren is not predicting a Canadian housing collapse, but rather a cooling in price gains. Nationally, she expects prices will rise 10 per cent this year, slow to the “high single digits” next year, and eventually fall back in line with the rate of inflation, which would put them between 2 and 2.5 per cent.

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