Economist expects market to 'cool gently'

 Another economist has thrown his hat into the mix of forecasters who believe Canada’s housing market is set for a slow and modest correction.

“Rival views of the Canadian housing market portray it either as an overvalued bubble about to burst or, conversely, as being only slightly overheated but having basically sound economic underpinnings and thus likely to cool gently,” Robin Wiebe, senior economist for The Conference Board of Canada writes in his latest housing briefing. “The Conference Board of Canada embraces the latter scenario.”

The 22 page briefing, entitled “Bubble Fears Overblown,” considers mortgage costs as well as housing prices when determining the health of the market. It also argues sensible lending rules and underwriting have safeguarded Canada from experiencing a similar downturn to the one suffered in the United States.

Moreover, an improving Canadian economy is expected to bolster the housing market in the near future, according to the Conference Board of Canada.

“Canada’s firming economic prospects feature balanced housing markets, improving consumer and business confidence, and a stronger U.S. economy,” Wiebe writes. “Advances in both employment and real gross domestic productive forecast to pick up in 2014, while the unemployment rate is expected to drop.”

While he admits several markets are due for modest housing price corrections, Wiebe also argues mortgage rate increases and population growth and employment gains will soften the blow caused by slight price drops.

The housing correction is also expected to be gradual, based on the mortgage terms selected by most homebuyers.

“This locks in their monthly payments and cushions them from rate increases for at least a few years,” Wiebe writes. “When they do face renewal, they will have more principal in their residence, because low mortgage interest rates mean that a larger portion of their monthly payment covers capital reimbursement.”