An economist that was once warning about Canada’s impending housing correction seems to have changed their tune. And back again.
Last spring, David Rosenberg, chief economist and strategist at Gluskin Sheff, stated in an article entitled, “Rosenberg: Canadian Housing is Okay” that:
“We see no reason why the Bank of Canada should be aggressive in raising rates, and at the same time, the demographics in favour of real estate are actually quite constructive, notably the influence from Canada’s business immigration platform. Note that in 2009, net international immigration to Canada surged 13 per cent. So not only is the country acting as a magnet for international capital inflow, but Canada is also being increasingly viewed as a stable place to do business and a desirable area to live.”
Yes, debt levels are a concern but he notes that homebuilders have shown some discipline in cutting back production, to an extent that didn’t exist in the United States at the peak of its housing market. In Canada, single-family housing starts have fallen 20 per cent from year-ago levels.
“As such there is no evidence of any meaningful supply-demand imbalance that should undercut real estate valuation,” Mr. Rosenberg said in a note to clients.
That’s quite a different message than he was conveying in the spring of ’10 in an article entitled, “Canadian housing market correction in the cards, says economist” where he says:
“It would not be out of the realm to see a correction, using nationwide average home prices as the benchmark, of at least 20 per cent.”
And just a few months before that, he wrote this entire article detailing the Canadian housing bubble.
Fast forward to a report this week where Mr. Rosenberg describes the different real-estate market landscapes on either side of the Canada-U.S. border–”bubble versus the rubble.”
He states that housing prices in Canada and the U.S. have never been this polarized, with Canada’s prices on average twice that south of the border. Historically, they have been close to parity, he says, and they can’t stay this far apart forever.
Activity in the Canadian market should cool off, with condo sales vulnerable to a 20% drop in hot spots like Vancouver and Toronto and the new mortgage rules implemented this week are sure to “bite into demand.”
“Canada is carving out a top, while the United States is seemingly carving out a bottom,” he writes, while Toronto and Vancouver prices are “not sustainable, my friends.”