IMF says Canadian market riskier now than US but this is not 2008!
Risky housing market conditions that dominated the financial crisis of a decade ago are being seen again.
But while it was the US housing market that was the concern in the last crisis, this time Canada’s housing market is a greater risk according to the IMF.
It’s the latest red flag for the Canadian housing market following CMHC’s assessment that vulnerability remains.
In its Global Financial Stability Report, the IMF says that the risk in Canada has grown over the past two years and is near to levels seen during the financial crisis of the last decade. This is especially true in Hamilton, Toronto, and Vancouver.
In the US, the risk has declined as household debt has eased and housing prices have become more closely aligned with incomes.
But this is not a time to panic, because the IMF’s assessment is that the policy changes that Canada’s regulators and governments have taken are the right ones to protect the financial system from a new crisis.
Unpopular as it is, the mortgage stress test that was introduced at the start of 2018 and which has been blamed for the downturn in housing markets, is a good thing says the IMF.
So too is the introduction of taxes on foreign buyers.
Capital inflows
The report notes that the dynamics of housing markets in global cities is impacted to some degree by capital inflows and highlights that Albertan cities are vulnerable due to the surge in prices during the boom years for oil, followed by the more recent decline in home prices as the oil industry suffered with lower prices and investment.
Portfolio managers from PIMCO also recently warned of “unsustainable” growth in the Canadian economy from consumer debt and housing.
