Canadian homes are still cheap, at least in foreign currency: Bank of America

THINK OUTSIDE THE BOX:  Even Vancouver, Toronto, Canmore, etc., are considered inexpensive to American and Chinese buyers:

A major U.S. financial institution is telling clients that the Canadian housing market is still cheap — especially if you’re not using loonies to buy.

Bank of America Merrill Lynch Global Research on Wednesday launched coverage of Canada’s mortgage finance system, policy infrastructure and securitization channels and one of its findings, which may shock some Canadians in Toronto and Vancouver, is that the market is not all that pricey.

“Homes are cheaper on both a U.S. dollar adjusted and Chinese renminbi basis than in 2010-2014. Despite the high rates of home price appreciation, the continued appeal of Canadian real estate is reflected when adjusting home prices for the substantially weaker Canadian dollar,” the firm writes in its report.

The Real Estate Board of Greater Vancouver this month reported a slowdown of 26 per cent in August sales from a year ago, but prices in the region were still up 31.4 per cent during the period and the average detached home sold for $1.47 million. August prices climbed 17.2 per cent in Greater Toronto and the average detached home in the region is now selling for $964,002.

The provincial government in British Columbia, in an attempt to control the run up in prices, has slapped a 15 per cent additional property transfer tax on foreign buyers in Metro Vancouver. The Ontario government has said it is monitoring the Vancouver situation.

BofA Merrill Lynch says it’s time to go beyond the the headlines.

“Home price trends have not been uniform. Large disparities feature in the bias from Toronto, Vancouver and surrounding areas, which if excluded, show that home prices in Canada have actually declined,” said the firm in its report. “Prices, in pockets, are overheated, with continued signs of an imbalanced housing market, but fall short of a bubble. We draw stark contrasts to the home price run-up witnessed in the lead-up to the U.S. housing bubble. Sales volume, controlled for population size, is well under that of the U.S. peak.”

The report added that National Housing Act Mortgage Backed Securities, a program run by Crown Corp. Canada Mortgage and Housing Corp., offer a AAA sovereign guarantee, prepay stability due to penalties and low defaults due to recourse provisions.

“Mortgage funding in Canada is largely in the hands of large domestic banks, which hold almost double the share of mortgage loans than U.S. banks,” the bank noted. “The other key funding channels are covered bonds, an area of post-crisis growth, and securitization vehicles, namely the National Housing Act (NHA) MBS. Securitization forms a stable and smaller slice of funding and share of Canada’s GDP compared to in the US, where it dominates.”

Garry Marr      Financial Post      September 14, 2016

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