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Inside the Bubble? Assessing Real Estate Risk in Canada The Conference Board of Canada, October 26, 2017 Recorded Webinar by Craig Alexander

Inside the Bubble? Assessing Real Estate Risk in Canada

The Conference Board of Canada, October 26, 2017
Recorded Webinar by Craig Alexander

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Since 2000, real home prices have doubled in Canada. The explosive growth leads to talk of a housing bubble. These concerns are not surprising given the dramatic rise in prices, especially in the regional markets of Toronto and Vancouver. Much of the real estate buying has been debt financed, and the high level of household indebtedness poses an economic vulnerability. In this webinar, Craig Alexander provides a detailed analysis of the fundamentals that are shaping housing markets and puts the discussion about housing bubbles in proper context. He discusses real estate trends in Canada and compares them to the experience of the U.S. housing bubble. He also takes a detailed look at the risks associated with household debt and mortgage lending, in particular. Craig also discusses the appropriate regulatory and monetary policy response to the risks in real estate and household debt. Webinar Highlights During this 60-minute webinar, Craig covers all the forces that lead to risk in the real estate market, including: Housing affordability: As home prices in Canada have climbed faster than income, affordability has deteriorated. Underlying factors driving price growth in Vancouver and Toronto: solid economic growth; population growth fuelled by immigrants; and land scarcity and zoning policy. Regulatory policy: The Canadian market is well-regulated, and is dominated by prime mortgage loans. Even with the growth of sub-prime mortgages in recent years, they remain a small share of the market. Measures to assess housing risk: Debt-to-income is a poor metric because it says little about risk. Debt service obligations tell a more appropriate picture of risk. The trend of a rising share of highly indebted households has reversed, and should diminish further as Bank of Canada rate hikes are felt. The potential impact of a price correction: Consumer spending is roughly 60 per cent of GDP. If more income goes to servicing debt or if there is a home price correction that creates a negative wealth effect, it could weaken the performance of the Canadian economy. About Craig Craig Alexander brings 20 years of experience in the private sector as an economic and financial forecaster to the position of Senior Vice-President and Chief Economist. Craig oversees the Board’s macroeconomic outlook products and its custom economic and tourism research. He joined The Conference Board of Canada in September 2016. Most recently, Craig was the Vice-President of Economic Analysis at the CD Howe Institute. Previously, he was Senior Vice-President and Chief Economist for TD Bank Group—the second largest bank in Canada and the eighth largest in the United States. During his tenure, he led a large team of economists providing in-depth analysis to TD’s divisions and clients. Prior to joining the private sector, he spent four years as an economist at Statistics Canada.

Since 2000, real home prices have doubled in Canada. The explosive growth leads to talk of a housing bubble. These concerns are not surprising given the dramatic rise in prices, especially in the regional markets of Toronto and Vancouver. Much of the real estate buying has been debt financed, and the high level of household indebtedness poses an economic vulnerability.

In this webinar, Craig Alexander provides a detailed analysis of the fundamentals that are shaping housing markets and puts the discussion about housing bubbles in proper context. He discusses real estate trends in Canada and compares them to the experience of the U.S. housing bubble. He also takes a detailed look at the risks associated with household debt and mortgage lending, in particular. Craig also discusses the appropriate regulatory and monetary policy response to the risks in real estate and household debt.

Webinar Highlights

During this 60-minute webinar, Craig covers all the forces that lead to risk in the real estate market, including:

Housing affordability: As home prices in Canada have climbed faster than income, affordability has deteriorated.
Underlying factors driving price growth in Vancouver and Toronto: solid economic growth; population growth fuelled by immigrants; and land scarcity and zoning policy.
Regulatory policy: The Canadian market is well-regulated, and is dominated by prime mortgage loans. Even with the growth of sub-prime mortgages in recent years, they remain a small share of the market.
Measures to assess housing risk: Debt-to-income is a poor metric because it says little about risk. Debt service obligations tell a more appropriate picture of risk. The trend of a rising share of highly indebted households has reversed, and should diminish further as Bank of Canada rate hikes are felt.
The potential impact of a price correction: Consumer spending is roughly 60 per cent of GDP. If more income goes to servicing debt or if there is a home price correction that creates a negative wealth effect, it could weaken the performance of the Canadian economy.

About Craig

Photo of Craig Alexander Craig Alexander brings 20 years of experience in the private sector as an economic and financial forecaster to the position of Senior Vice-President and Chief Economist. Craig oversees the Board’s macroeconomic outlook products and its custom economic and tourism research. He joined The Conference Board of Canada in September 2016.

Most recently, Craig was the Vice-President of Economic Analysis at the CD Howe Institute. Previously, he was Senior Vice-President and Chief Economist for TD Bank Group—the second largest bank in Canada and the eighth largest in the United States. During his tenure, he led a large team of economists providing in-depth analysis to TD’s divisions and clients. Prior to joining the private sector, he spent four years as an economist at Statistics Canada.