Desjardins: A Vancouver/TO Correction Could Spill Over

A report released by Desjardins, the largest cooperative financial group in Canada, states that real estate market is raising concerns.  Although the chances of a housing market collapse remains relatively remote, they present a number of factors that make it likely we’ll see a slowdown with some markets actually declining.

The report suggests that Canada’s real estate market is heading for a gradual and orderly pullback.

“That said, an economy’s adjustments often happen more quickly than initially anticipated. We can therefore not rule out the possibility of a sharper correction by the real estate market, especially if Canada’s economy is hit with a major shock, such as a steep drop in commodity prices or a substantial decline in earnings and employment resulting from heavier erosion of economic conditions. Although the risks of sharp corrections primarily affect Toronto and Vancouver, these two markets could potentially generate a negative spillover effect that could impact the entire Canadian real estate market.”

The last paragraph of the report was interesting – was he hinting at something he’s privy to?

As we said earlier, the government has already made three attempts to curb the real estate market’s advance by tightening mortgage lending conditions. The goal is of course to find the right mix to slow the market without making it collapse.

However, the third series of measures was announced nearly a year ago now, and we must conclude that the tightening introduced to date has not slowed the market enough. Under these conditions, it is likely, and perhaps even desirable, that the federal government will shortly announce a fourth series of measures to further limit mortgage credit. Among other things, the government could be tempted to once again raise the minimum down payment on new loans (it went from 0% to 5% in October 2008).

You can read the entire report here

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