Late to the party: IMF adds its ‘overvalued’ report to the bunch

by Olivia D'Orazio04 Feb 2015
The International Monetary Fund (IMF) has hopped on the bandwagon, declaring Canada’s housing market overvalued, though it still predicts a “soft landing”.

“Canada’s housing market rebounded in 2014, fueled by low and declining interest rates although there are some welcome signs of cooling especially in overheated markets,” the IMF said in its report. “IMF staff analysis suggests a national real house price overvaluation between seven and 20 per cent, although with important regional differences.”

Those regional differences are behind the wide disparity in overvaluation. But, agents on the ground say they haven’t witnessed the kind of scary markets reactions various reports, like those from the IMF, the Bank of Canada and Deutsche Bank, have suggested.

“They talk about the global market, and they say it’s a bubble, but all their analyses stop at Montreal,” says Trevor Parsons, a broker with Innovative Real Estate in Halifax. “The stats here, for the whole metro Halifax area, our sales were up 0.2 per cent over last year. We had a great December.”

Agents in Toronto – one city among the several that many people believe are driving the overvaluation – also said no such oveheating is being felt.

“People think there are a lot of buildings going up but there aren’t enough for the demand,” says Nerses Sraidian, a broker in Markham, Ont. “It’s all about supply and demand and there’s a lot of demand. We need more supply, so I don’t think [housing prices] are overvalued.”

The numbers support that sentiment. Mark McLean, a broker with Bosley Real Estate in Toronto, says listings are down, but sales are still going strong.

“That leads us to believe that people are now digging into the homes that have been around for a while because there’s such a lack [of inventory],” McLean says. “It’s not typically an interest rate-driven market. That’s a big part of it, but they’re just not making houses anymore. We’re not building as many units as we need. This is a great example of supply and demand.”

Meanwhile, the IMF also applauded the Bank of Canada’s decision to slash the overnight rate by 25 basis points, to 0.75 per cent – a move that surprised agents and analysts alike. Canada’s largest banks have since followed suit, dropping mortgage rates by just 15 basis points.

“Directors … supported the Bank of Canada’s decision to lower the policy rate as it would help further support the economy in light of the likely adverse effects of the oil price shock,” the Fund said. “However, they encouraged the authorities to continue monitoring the impact of monetary policy on household debt and house prices.”

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