Markets in Regina, Saskatoon, Vancouver, Victoria, Calgary, Edmonton, Sudbury and Montreal are all more than 10 per cent overvalued, as calculated by economists David Wolf and Carolyn Kwan.
Anybody who has lived in Calgary in the last five years knows too well how nutty the housing situation was getting. House prices more than doubled in the space of less than five years - you had to know that was overheated.
I don't know why anybody is surprised by either a cooling of the housing markets or news of significant job losses.
The reality is that with oil over $100/barrel, the only people that really win are the big oil companies. Other sectors of the economy have to pull back when the end prices they pay for energy begin to reflect the inflated commodity prices. There will be a cycle of consumer inflation that we have yet to experience as well - this will further stretch the demands on people's paychecks. I expect 'big ticket' purchases such as homes, cars etc. to slow down dramatically as people adjust to the realities of economic uncertainty.
Whether this turns into a full blown recession or is just pull-back in our economy to reflect the changing situation on the world stage is yet to be seen. I suspect it may produce a "regional" recession - with parts of Canada getting hit harder than others.
I have always been a proponent of Canada expanding its trade network to diversify beyond the massive dependence we have on trade with the United States. Sadly, in the last ten years, none of our governments have acted on that - content to ride the short term wave of a housing-bubble fired spending boom in the United States. Since oil is a 'global commodity', the current price spike is affecting economies around the world, and a more diversified trading network would still result in a net exporter country like Canada experiencing a significant economic slowdown. What it would do is make the recovery cycle smoother, and likely faster as the various regions of the world will recover at different rates. (I fully expect Europe and Asia to recover from the current slowdown quite a bit faster than the US - the US economic picture has depended for too long on growth due to 'bubble spending', and it's going to take quite a while for the economic engine to start producing product again)
3 comments:
If anything, Calgary's housing market is undervalued. Look at the climate of high paying jobs and low taxes. This is why although listings have doubled prices are only down 3-4% since 2007 - compared to Edmonton which has had a 15-20% decline. Historical housing prices in Canada solidify this point.
There will be a recovery next year of 5-10% - hardly massive growth, but rather an upward inflationary adjustment that will continue in each of the next few years.
Ummm... I hate to point this out, but Calgary's wages aren't that great. Right now, a modest home is out of reach for a lot of families - you basically need two full-time, professional incomes.
Calgary's market is not, IMO, 10% undervalued. That just doesn't make sense. (Yes, the oil patch is hiring at stupid wages - but anyone who understands the oil patch also recognizes that as a normal part of the 'boom cycle', which inevitably results in some pretty ugly layoffs when things soften.
No we're not 10% under. I'd say close to 20%. Real estate here is at such an amazing bargain right now.
Even in the last "bust" in 1982 - the market recovered within 18 months.
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