Bank of America Merrill Lynch Global Research, in its coverage of the Canadian mortgage finance system, discovered that contrary to popular opinion, Canada’s homes are rather affordable, but as long as loonies are not in the picture.
BofA Merrill Lynch in its report released on Wednesday (September 14), as quoted by the Financial Post, wrote “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.”
The report added, “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.”
Citing figures from the Real Estate Board of Greater Vancouver and Toronto officials pointing out clear year-over-year home price growth in their jurisdictions (31.4 per cent and 17.2 per cent, respectively), BofA Merrill Lynch stated that these increases ought not to be used to judge 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.”
Moreover, adding to the misconstrued perspective is the presence of record-low credit costs, as cheap borrowing is inciting 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.