In its coverage of the Canadian mortgage finance system, Bank of America Merrill Lynch Global Research noted that contrary to popular perception, Canada’s homes are still quite affordable - but only as long as one is not using loonies.
“Homes are cheaper on both a U.S. dollar adjusted and Chinese renminbi basis than in 2010-2014. Despite the high rates of home price appreciation, the continued appeal of Canadian real estate is reflected when adjusting home prices for the substantially weaker Canadian dollar,” BofA Merrill Lynch wrote in its report released on Wednesday (September 14), as quoted by the Financial Post.
“Home price trends have not been uniform. Large disparities feature in the bias from Toronto, Vancouver and surrounding areas, which if excluded, show that home prices in Canada have actually declined,” the report went on to say.
BofA Merrill Lynch cited figures from the Real Estate Board of Greater Vancouver as well as Toronto officials that pointed at significant year-over-year home price growth in their jurisdictions (31.4 per cent and 17.2 per cent, respectively), but added that these increases should not be taken as representative of the condition of the entire Canadian housing sector.
“Prices, in pockets, are overheated, with continued signs of an imbalanced housing market, but fall short of a bubble. We draw stark contrasts to the home price run-up witnessed in the lead-up to the U.S. housing bubble. Sales volume, controlled for population size, is well under that of the U.S. peak.”
Furthermore, a contributing factor to the distorted perspective is the prevailing environment of record-low credit costs, as cheap borrowing is actually further inflaming Canada’s most active markets.
“As a result, high demand in Toronto and Vancouver is so profound, that excluding these metro areas, home prices actually have declined. There is wide dispersion across regions, with more stable prices in Quebec and declines in Alberta and Saskatchewan following energy price declines,” BofA Merrill Lynch concluded.