Credit Suisse: Not clear whether housing market will land hard or soft

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In its annual Global Wealth Report, Credit Suisse paints a opaque picture of the Canadian financial picture; which it attributes, in large part, to an unclear housing forecast.

“Rapid growth in mortgages has fuelled a continuing rise in household debt,” the report stated. “Mortgage terms were tightened in 2012 and the market cooled somewhat, but there are continuing concerns; it is not clear whether the final landing will be soft or hard.”

The report was written by Anthony Shorrocks, director of Global Economic Perspectives Inc. who has a PhD in economics from the London School of Economics; Jim Davies, Economics professor at the University of Western Ontario; and Rodrigo Lluberasis, Economics PhD candidate at the University of London.

The report also touched on the modest household wealth growth experienced by Canadians.

“Measured in US dollars, household wealth grew at an annual rate of 6.7% between 2000 and mid–2013,” the report stated. “Discounting exchange rate effects, the rise in wealth is a more modest 3.7% per annum. The 25% contraction in USD wealth in 2008 is also much less evident when expressed in Canadian dollars.”

And although it admits Canada has experienced a smoother recovery from the economic recession than the United States of America, it also states that our wealth holdings are similar.

“In some respects, the pattern of wealth holdings in Canada resembles that in the USA: in both countries, for example, financial assets account for more than half of household wealth,” the report said. “Canada has lower wealth per adult than the USA, and the gap grew last year from 9% to 17%, reflecting both USD appreciation and better stock market performance in the USA.”

However, the distribution of wealth in Canada is more equal; which has resulted in a higher median wealth than our southern neighbours.

“As a result of a more equal wealth distribution, Canada has much higher median wealth: USD 90,300 compared to USD 44,900 for the USA,” the report said. “Relative to the USA, Canada has both a smaller percentage of people with less than USD 10,000 and a larger percentage with wealth above USD 100,000.”

  • Paolo Di Petta | dipettamortgage.com on 2013-10-22 12:33:39 PM

    The reason why the future doesn't seem to be clear is because we're likely to see a continued divergence in markets. The markets with resources/jobs will continue to thrive (think, Alberta), whereas the markets that aren't seeing as much employment growth and have a high cost of living (think, GTA/Vancouver) are going to continue to suffer.

    Aggregate country-wide stats become less relevant by the day. Home/Auto insurance don't charge the same rates across the country. Even nationwide retailers have different "pricing zones" that vary from city to city. It's time to look past the housing market and economy as one amorphous blob.

    That being said, the interaction of local and global economies is also important. We can't ignore our neighbours and other trading partners, nor can we ignore the fact that many economies are facing similar issues and potential bubbles.

    This isn't a game of checkers, it's chess, and we need to start looking a few moves ahead. We've been playing without sound strategy for far too long.

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