Benjamin Tal, who I’ve discussed before after his July 2008 presentation on the state of the Canadian and US economies to the Real Estate Investment Network, was finally quoted in some good context in a CBC article. (Hat tip to Gary McGowan and Don Campbell on myREINspace) It’s nice when the mainstream media publishes something that’s real, even if it doesn’t drive a lot of traffic or sell a lot of advertising.
The core take away:
“To be sure, house prices in Canada will continue to ease in the coming months, but the triggers that led to a free fall in Canadian real estate markets in the early 1990s and today in U.S. markets are nowhere to be found.” – Benjamin Tal
In a nutshell, the major cause of the US bubble and resultant meltdown was the subprime borrowing that fueled house prices. However, the gains we’ve seen in Canada have not been caused by the same availability of credit, but rather by economic fundamentals in most regions.
At the peak of the cycle, subprime and Alt-A mortgages accounted for no less than 33 per cent of originations in the U.S. market. In Canada we estimate that at the peak, non-conforming mortgages reached 5.4 per cent of originations.
Things are going to keep easing or being essentially flat with respect to inflation, but only for another 6-18 months. Then it’ll be back to steady growth, as one would expect from a fundamentally strong market which experiences the same cyclical growth we see in all systems.