Christie's Real Estate Team

Current Canadian housing-value trends are "unsustainable," says a senior economist at Scotia Economics.

Adrienne Warren said yesterday that rising home prices, increasingly out of the reach of many, are eventually heading for a correction.

Warren said the fact housing in many regions of the country is overvalued increases the risk of prices dipping in the longer term.

"The fundamentals underpinning Canada's housing market are still quite good," she said in Scotia Economics' latest Real Estate Trends report.

"Unemployment is low, immigration is high and apartment-vacancy rates are tight. There is little evidence of overbuilding or speculative buying.

"The industry also has relatively little direct exposure to subprime lending, with these loans accounting for only about five per cent of domestic mortgages in recent years, compared with about 20 per cent in the U.S.," Warren said.

"Affordability is becoming increasingly stretched for many would-be buyers after almost a decade of rising home prices.

"More recently, economic risks have increased in the wake of the intensifying financial market turmoil stemming from the U.S. subprime-mortgage problems," she said.

The Scotia report noted that, in all 15 cities examined with the exception of St. John's, N.L., house prices are above their long-term trend, with big regional variations, from one per cent above trend in Ottawa to 13 per cent in Vancouver and 25 per cent in Edmonton. The average deviation at mid-year was roughly eight per cent.

Richard Wittstock, vice-president Development of Amacon, a major Vancouver-based development company, agrees that the rate of appreciation for houses is probably unsustainable.

"That is probably true and, while prices will remain strong, they will grow at a more moderate rate," he says.

Amacon has projects across Canada, including in Alberta and Ontario, and Wittstock says the fundamentals of the market remain strong.

"Vancouver is being priced at world prices because it is a world city. At the end of the day, population continues to grow here and that is purely a reflection of the growth of jobs and [a] good economy," he says.

RBC Economics has reported that housing affordability in Canada in the second quarter worsened in every housing type, every province and every major city.

"In the second quarter, Canada's housing affordability experienced one of the largest and most broadly based quarterly deteriorations since the mid-1990s," said Derek Holt, assistant chief economist with RBC.

© The Vancouver Province 2007