Photo: James Bombales
The Canadian housing market has a global reputation for its high housing prices and household debt levels. Yet, despite the troubling figures, the market isn’t at risk of a housing crash — at least for the time being.
While Canadian property appears to be highly valued, the housing market remains at a low risk of a sharp correction in the next year, according to a new report from investment management company Vanguard.
“While affordability is a huge concern, particularly in large cities, Vanguard economists consider that the risk of a sharp correction — defined as a correction in the space of a year which severely impacts the economy or causes a recession — is low for markets studied, including Canada,” reads the report.
It notes that structural factors including low levels of housing supply, historically low interest rates and foreign investment explain a “fair amount” of demand for housing in the country over the past 20 years.
But, as the Bank of Canada continues to hike interest rates moving into 2019, the authors write that home prices should begin to soften in the new year.
“The global financial crisis primed people to equate ‘housing price decline’ with [a housing crash],” reads the report. “In the economies we cover, the risk of that scenario unfolding, in our opinion, is low. Normalizing interest rates could keep Canada’s house prices from appreciating further.”
When it comes to the risk of a crash in the next five years, the authors write that how homeowners handle their debt will be a key factor in maintaining the health of the market.
“How households handle high debt burdens in an environment of slow income growth will offer strong clues about the scenario that could unfold,” it reads.
