CIBC warns Canada's housing market is in rougher shape than we thought

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border_humper

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Canada’s housing correction drags on, data showed us yesterday, but with the sector representing a bigger chunk of our GDP than most other G7 countries, what does that mean for the economy?
CIBC economists Benjamin Tal and Katherine Judge looked at this question in a report out yesterday, and concluded that not only is the economic impact “not trivial,” the damage is deeper than some officials statistics would suggest.
Another casualty of the housing correction involves the wealth effect — the concept that when your assets rise in value you feel richer and buy more. When your assets lose value, you spend less.
It’s something that’s difficult to quantify, said the economists, though many have tried, including the Bank of Canada, which in one study estimated that for every dollar increase in home values, spending rose by 5.7 per cent.
But the surge in home prices in Canada earlier this decade didn’t just give homeowners a psychological boost, it allowed them to borrow more against the value of their homes. Now with prices falling and loan-to-value ratios rising, more Canadians are finding it difficult to tap into that home equity.
The decline in homebuilding and falling home prices have “clear negative” implications for the economy, said CIBC — and it’s likely to get worse before it gets better.

“The economics of homebuilding, mainly in the high-rise space, is simply broken,” with prices “still too high to buy and not high enough to build.”

Until the country can figure out a way to reduce “the unsustainably high cost of homebuilding,” things will only get worse, not only for the housing market, but for the economy, they said.
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Did that direct flight from Karachi ever get running?
 
Upvote 8
A fair amount of those who own homes are financially illiterate. I recall a conversation with a client once who had taken out a HELOC and so the bank now had to be listed on the homeowners policy as a mortgagee. She lost out on a mortgage free discount so here premium went up. The client, when i spoke with her didnt quite understand the agreement she entered into with the bank. She thought it was free money completely unaware she offered up her home as collateral.
 
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