Canada continues to report disturbing stats about its housing market.December’s home sales in the two hottest Canadian housing markets indicate that a large crisis may be looming up north.
Compared to December 2011, home sales are down 19.5 per cent in Toronto and 31.1 per cent in Vancouver, two of the three biggest cities in Canada.
Nationally, home sales only fell by 4 per cent over the course of the 2012.
The stricter rules on mortgages put into place in the summer of 2012 to cool down the market appear to be working.
In “Why Haven’t We Crashed Yet“, Canadian Mortgages Inc. reports that the impending crash everyone’s expecting is “not going to until some dramatic trigger happens that really delivers a blow to the market. And that blow is likely not to come in the form of interest rate hikes.”
The Bank of Canada recently chose to put off an interest rate increase, and maintained its overnight rate at 1 per cent.
The argument is simple: a crash needs a cause. Benjamin Tal, deputy chief economist at CIBC, argues that as it stands, the Canadian housing market will likely stagnate unless unemployment or interest rates surge – which would leave people unable to afford their homes.
Something housing guru Robert Shiller said back in September still rings true today: “I worry that what is happening in Canada is kind of a slow-motion version of what happened in the U.S.”
Due to the lack of a trigger, this softening and decline in home values will take place over an extended period of time.
It’s not likely that this bubble will suddenly pop. Rather, if you listen to Shiller, a more apt comparison would be the slow deflation of a blow-up mattress.