The IMF – and Vancouver – is offering mortgage brokers one last Christmas gift, suggesting the average home price is 10 per cent above where it should be, setting the stage for a major correction.
“We use the estimated models to gauge the level of house prices that would be consistent with the long-run determinants of house prices,” writes the International Monetary Fund in a background paper for its annual assessment, released Thursday. “A weighted average of our estimates (with weights based on provincial GDP levels) suggest that house prices in Canada are on average 10 percent above the level consistent with current fundamentals.”
That caution may apply more to B.C. than the rest of the country, including Ontario.
The IMF analysis “suggest(s) house prices in 2011 to be above the levels consistent with the current levels of fundamentals in British Columbia.”
The same can be said of Ontario where there are some signs of over-valuation, and of Quebec to “a lesser degree,” according to authors of the paper, which relies on several models for its conclusions.
“By contrast, the estimated models suggest house prices to be mildly undervalued in Alberta,” says the IMF.
The observations back up home-grown analysis, with economists concerned that an overheated Vancouver market has skewed the national average and concerns about the Canadian housing market.
But the IMF argues that an external shock such as a decline in foreign demand for Canadian exports or weakening of commodity prices could see housing prices across the country fall by that 10 per cent as unemployment grows, choking home sales.
Still, mortgage rule changes brought in this year and meant to slow the housing market may help to limit those negatives, suggests the international organization.
"The (Canadian) authorities have appropriately taken macro-prudential measures to curb the growth of household debt ... further macro-prudential measures may be needed if the debt build-up continues,” reads the IMF paper.