As global housing markets worsened this year, many Canadians could at least take comfort in the knowledge that even if prices here have dipped, it’s nothing compared to the carnage elsewhere—especially south of the border. That was until earlier this month, when a report in the latest issue of the International Monetary Fund’s IMF Survey found that Canada’s housing market has actually fared worse so far this year than the markets in many industrialized nations, including the U.S.
Based on data from the first half of the year, which the IMF researchers recalculated as an annual rate, Canada’s house prices, when adjusted for inflation, posted the sixth-worst performance out of 17 countries. Canadian real house prices declined 5.2 per cent, compared to 4.8 per cent in the U.S. “If you look at real housing prices, Canada had a significant appreciation over the last eight years, so it is something to be concerned about as prices begin to decline,” says Marcello Estevao, a senior economist with the IMF who covers the Canadian economy.
There are some important caveats to bear in mind, says Estevao. For one thing, the U.S. figures are based on data that doesn’t include subprime home sales, and those are the homes that have been hit the hardest in the meltdown. And the time frame measured in the report doesn’t take into account declines that have happened in the U.S. housing market before this year. Prices have been in free fall since 2006 in the U.S., says Estevao, and seem to be bottoming out a bit. Meanwhile, Canadian prices have only just begun to drop.
Having said that, Estevao says the IMF is concerned about the impact the falling Canadian housing market will have on our economy. So far the IMF is predicting Canada will avoid a recession, with growth of 1.2 per cent in 2009, but he cautions that the organization is in the process of rethinking its forecast. “Canada is lagging the U.S., but it is true that the Canadian economy will suffer from this house price adjustment,” he says.