Fears of a housing market crash are increasing because of continued house price rises, but Moody’s Analytics believes a soft landing is more likely. Still, they warn that a U.S. recession would trigger a more significant price correction.
The report issued Friday states that Canada’s housing market remains aloft due to to record-low interest rates (overnight rate has been at or below 1% for over 3 years) and consumers’ willingness to increase their debt levels (household debt as a percentage of disposable income has risen 40% since 2000)
However, they “don’t believe house prices will plummet.”
Prices will increase 1.1% in 2012 and essentially no price change in 2013. This baseline forecast assumes a Canadian GDP increase of 2.2% and a US GDP growth rate of 2.5% in 2012, which will “support a soft landing.”
If U.S. growth slows, Moody’s Analytics believes Canadian house prices would fall 0.24% in 2012 and 1.7% in 2013.
If the U.S. falls into an outright recession, Canadian house prices would fall 5.6% in 2012 and 10.3% in 2013. Moody’s Analytics believes there’s a 20% chance that this recession scenario plays out.
Moody’s Analytics, a division of Moody’s Corporation that provides expertise in economic and consumer credit analytics, credit research and risk measurement, enterprise risk management and structured analytics and valuation. Commentary produced by Moody’s Analytics is independent and does not reflect the opinions of Moody’s Investors Service Inc., the credit ratings agency, which is also a subsidiary of Moody’s Corporation.
Source: Financial Post, March 23, 2012