Financial Post: Real Estate
ODDS AGAINST BOOM TURNING TO BUST, BANK SAYS
By Eric Beauchesne
OTTAWA: The odds of a housing price correction are rising, a major bank is warning. However, the chances that the current seven-year boom will turn to a bust are still low because, while it has run longer than most, the 40% increase in prices is not excessive by historical standards and the run-up in interest rates has been relatively modest and umployment is low, Bank of Nova Soxia said in a report yesterday.
"From a historical perspective, the duration of the current upswing in the home process is relatively long," said Scotiabank economist Adrienne Warren, noting that over the past 50 years there have been three other major housing booms, each lasting five to six years. "The magnitude of the current price gain, however is not out of the ordinary, with the rise in real home prices essentially in line with the average 44% increase recorded over the prior three cycles."
Housing prices still appear to be well supported by economic fundamentals, being driven by tight supply-demand conditions, not investor speculation, the report said.
In contrast, during the 1985-to-1989 housing boom, which went bust, price increases were larger than would otherwise be expected, given overall market fundamentals.
The current housing boom is also more diverse regionally than previous ones, especially the 1980s boom, when average home prices were driven up by a spectacular -albeit unsustainable- 84% inflation-adjusted surge in Ontario, Mr. Warren said.
CanWest News Service