The Canadian housing market can expect a “soft landing”, even though there have been signs of overvaluation, according to the International Monetary Fund.
The IMF said that the main source of price increases in the Canadian housing market has been because of the surge in prices of single-family homes – particularly among high end buyers.
The IMF pointed out that Ottawa’s attempts at tightening the mortgage insurance market by weeding out marginal buyers has on the whole been effective.
However, it noted that more action may be necessary. The agency said “further action may be needed if household balance sheet and housing market vulnerabilities resume rising,” suggesting targeted measures, such as lower amortization for uninsured mortgages.
The strength in the Canadian housing market is mainly attributed to significant price appreciation in the markets of Calgary, Toronto, and Vancouver. Stricter and tighter mortgage insurance rules could have contained price growth in other markets in the country, the agency noted.
The Canadian housing market is in for a “soft landing”, says the IMF.
Canadian home prices are up between 5 and 20 percent higher than what fundamental would suggest, according to IMF officials.
The IMF forecasts that as long-term increase rates continue to rise, along with a somewhat weaker trade outlook (as oil prices slump), there should be a “soft landing” in the Canadian housing market.
It expects a gradual increase in rates instead of a sudden, steep, increase.
In regards to the Canadian economy, the IMF said:
“Deeper downside risks to growth involve a combination of external shocks that are amplified by high household balance sheet vulnerabilities and a sharper-than-expected correction in house prices.”
However, the risks appear to be “contained”, with the Canadian economy showing signs of solid growth over the past year.