Goldman Sachs economics on Canada's housing market
(For something a bit different ahead of the Aussie jobs report and BOJ coming up later in Asia)
In summary from the note:
- The sharp rise in Canada's home prices has invited comparisons to the US housing market in the run-up to the Global Financial Crisis.
- In addition, most Canadian mortgages have 25-year amortization schedules but 5-year terms, and thus many borrowers may be forced in the coming years to refinance their loans at higher mortgage rates.
- Given the potential risks that a housing downturn could pose to the Canadian economy, we address here the question "Is Canada's housing market in 2017 comparable to the US's in 2007?"
- We think the comparison of Canada to the US in 2007 overlooks important institutional differences between the two markets, including differences in prevailing lending standards.
- That said, Canada appears to have one of the more stretched housing markets within the DM.
- Our bust model indicates a 30% probability of a real house price decline of 5% or greater over the next two years, suggesting that Canadian house prices are an important risk that warrants monitoring by global investors.
Bolding is mine. In recent months the market there has taken a turn to the downside, the catalyst being the wobbles earlier in the year in Home Capital Group:
- CAD - latest on HCG - uncertainty over funding capabilities putting its future in doubt
- Did the bell just ring for a plunge in Canada's real estate market?
- Liar loans threaten to kick off Canadian housing crunch as scandal hits
- Blackrock warns not to ignore Home Capital 'woes' (I reckon they're right)
- Canada's HCG: risk of disorderly fallout, could hurt credit markets, economy
