Real Risk To Housing Market Is ‘Constrained Liquidity’ Canadians have so much tied up in real estate, they have little cushion left over, says president of CMHC Canadians’ ability to weather a downturn in the housing market is much lower now than in the past because of their “constrained liquidity,” says the president of the Canada Mortgage and Housing Corporation. With some 48 per cent of Canadians’ net worth now tied up in real estate, and some of it overvalued in key markets, homeowners could find themselves in a real financial bind if “external risks,” such as deflation now hitting parts of Europe, were to lead to job losses here, says Evan Siddall, present of the CMHC. Still-elevated levels of household debt remain the top concern for the federal housing agency, but few are talking about the other major economic risk from that — Canadians’ lack of a financial cushion if they are hit by a prolonged period of unemployment caused by offshore events such as a deepening downturn in the Chinese economy, Siddall said during a noontime question-and-answer session Monday organized by the Canadian Club of Toronto. Just hours before Siddall’s speech, Moody’s Investor Service also raised concerns about household debt that has continued to rise, right along with house prices. “The Canadian economy is very strong, but we have an open economy, we trade with other countries in the world,” and those “external challenges” remain “a major challenge,” he said. “In general, we’re not concerned” about the health of the overall Canadian housing market, said Siddall, although he added that the market is “tilted” with higher fundamentals in the west than the east, and overvaluations in some major markets. “The Canadian housing market is robust. Prices are elevated, they’re high. But we’re not alarmed,” said Siddall when asked about concerns the Canadian housing market is in bubble territory and at risk of bursting. “We are more concerned about elevated levels of consumer debt.” Some housing bears and economists, most notably Benjamin Tal, deputy chief economist at CIBC World Markets, have raised concerns that CMHC is “flying blind” because it’s lacking critical information on so many aspects of the housing market, such as some sense of the scale of foreign investment. Siddall acknowledged there are gaps and a team is now working to fill as many as possible, although that’s proving to be especially challenging when it comes to foreign ownership because of privacy and other issues, he told the business crowd. He defended a condo survey, released by CMHC in August, that found just 17.1 per cent of Toronto and Vancouver condo owners are investors and 82.9 per cent own the unit in which they live. The report was widely criticized for leaving out more information that it included, especially in Toronto where investors are believed to control far more — at least 40 per cent — of the condo market. “It bothered us that the information was not complete,” Siddall told the lunch crowd, adding that the federal housing agency felt transparency was more important and that it was critical to release what they knew. Efforts are now being made to fill in the gaps, he said.
Posted on: Fri, 05 Dec 2014 16:01:35 +0000
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