Edmonton Skyline [photo credits mastermaq]
The old saying that Britain gets the ‘flu’ when
America sneezes would suggest that a truly scary disease was in store for the Canadian economy now. However, this seems to be far from the truth; demand forCanada’s raw materials will continue unless and until US household spending dives so far downwards to result in a slowdown in the Asian economies. In the meantime, the Canadian housing market presents a mixed picture but definitely a rosier one than south of the border.
Wednesday’s decision by the bank of Canada to hold interest rates at the current level (4.5%) was in step with other central banks (such as the Bank of England and the Reserve Bank of Australia) and showed that concerns about liquidity in the financial markets were taking priority over fighting inflation for the time being. This should be seen in the context of
Canada’s recent strong economic growth and the fact that the country is missing its 2% inflation target. The Bank is scheduled to announce its next decision on interest rates in October. In response to the recent credit crunch several Canadian financial institutions have pledged to actively support the commercial paper market and to ensure that new credit is available for companies that need it.
Canada’s real interest rates are still only about 2% and until this level rises, the real estate market will have stronger support than exists in the US or the UK where real interest rates are significantly higher. Canada has also been much less affected by the fashion for sub-prime mortgage lending with sub-prime only making up 5% of the mortgage market compared to 12% in the
United States (The Star, 18th August).Canada’s banks don’t seem to have suffered more ill effects from purchasing dodgy collateralised debt obligations those in other countries.
Overall house price re-sales are expected to be up about 8% on the 2006 level at 523,000 transactions, The Globe & Mail reported on 20th August. Nationwide the luxury home sector is holding up and figures for sales of condominium properties in the
Toronto area are also doing well . Figures for non-residential construction are expected to be good in 2007 but to see no great further improvement for four years thereafter. This forecast came from the Conference Board of Canada and, presumably, does not take into account the most recent worries about a US recession. Generally speaking, the Western Provinces, especially Alberta with its oil sands bonanza, are faring significantly better than Ontario’s manufacturing sector or the Maritime Provinces. However, it seems likely that Alberta may be going to suffer the after effects of a real estate bubble, if house sales inEdmonton are anything to go by. In the medium term there is a possibility of a trend towards Canadians investing in moreUS real estate now that prices in so many areas are falling and the Canadian dollar is stronger relative to the US dollar. This may become a particularly important market for Canadians wealthy enough to own second homes.
Of course, Alberta’s oil sands are not
Canada’s only natural resource; oil discoveries in other parts of the country would have a noticeable effect on property prices. In Newfoundland, there are hopes that theHebron consortium’s oil production will encourage the province’s property market. The project represents an injection of $16bn into the local economy.