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business briefing

Briefing highlights

  • Reports suggest soft landing
  • Global markets mixed so far
  • New York poised for weaker open
  • Investors ponder Trump comments
  • Canadian dollar pops above 76 cents
  • Annual inflation at six-year high

From dire to doable?

Things suddenly look less dire for Canada’s housing market.

These are early days, of course, and the Vancouver area is still in flux, but recent reports suggest Canadians should count their blessings but cross their fingers for something sustainable after government and regulatory moves aimed at preventing burst bubbles.

First, as The Globe and Mail’s Janet McFarland reports, last week’s numbers from the Canadian Real Estate Association showed home sales rising 4.1 per cent in June from May, though still declining from a year earlier.

That month-over-month increase followed a slim rise in May, all of which suggests the market is adjusting to mortgage stress tests introduced by the federal bank regulator in January.

Vancouver was still struggling, however, in the wake of added provincial reforms in March.

Then this week, JPMorgan Chase also suggested Canadians are adapting to the combination of policy measures and higher interest rates.

“Thus far, the market has appeared to absorb these changes well, showing some desired cooling in prices and sales, without severe disruptions in construction activity,” the big U.S. bank said.

“Housing starts and permits both jumped in their most recent releases, and while these monthly data can be choppy, neither series shows any sign of an alarming decline in its trend.”

The analysts also noted that housing credit growth has eased in Canada, while prices in Toronto and Vancouver “have proven highly responsive to” provincial taxes on foreign buyers of local real estate.

JPMorgan’s heat map also shows some improvements in certain areas from its earlier look a few months ago.

Probability of a 20% decline in real house prices within 5 years

Predictor Australia Canada New Zealand Norway Sweden
Price growth over last 5 years 13% 13% 16% 8% 14%
Price growth over last 10 years 10% 11% 10% 9% 11%
Price growth over last 20 years 16% 15% 16% 15% 19%
Price/income change over 5 years 21% 20% 26% 10% 22%
Price/income change over 10 years 14% 16% 16% 10% 15%
Price/income change over 20 years 20% 20% 21% 16% 22%
Price/rent change over 5 years 19% 23% 25% 12% 22%
Price/rent change over 10 years 11% 19% 16% 11% 17%
Price/rent change over 20 years 20% 27% 29% 18% 27%
Household debt / GDP ratio 20% 17% 15% 17% 15%
HH debt/GDP change over 5 years 15% 11% 8% 20% 10%
HH debt/GDP change over 10 years 10% 13% 6% 15% 13%
HH debt/GDP change over 20 years 19% 14% 13% 16% 15%
Unweighted average 16% 17% 17% 14% 17%

SOURCE: JPMORGAN CHASE


“In general, the models find that years-long run-ups in house prices and household debt make a housing correction more likely, but still far from inevitable,” said the authors of the JPMorgan study, Henry St. John, Jesse Edgerton, Raphael Brun-Aguerre and Silvana Dimino.

“For example, many countries saw large increases in prices and debt between the years 2000 and 2006, but only some of the countries – like the U.S., Spain and Ireland – experienced a subsequent correction,” they added.

“Others, like Australia, Canada, New Zealand, Norway and Sweden, saw housing markets continue rising with relatively little disruption.”

That’s not to suggest that there still aren’t dicey areas, but there have been improvements since the last study in the price/income change over five, 10 and 20 years.

“These same markets still show the greatest signs of price vulnerability, though the historical data suggest that correction risks are not high in absolute terms,” the JPMorgan analysts said.

“On the basis of price growth, New Zealand, Sweden and Australia show the highest likelihood of a correction,” they added.

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