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May 26th, 2011

Canada housing prices risk slide, report finds

Posted by Joan McGuigan
  • Article rank
  • 26 May 2011
  • The Gazette
  • Peter O’neIl Postmedia News euRoPe coRResPoNdeNt
  • ParIS – Canada’s housing market faces a risk of sliding prices, according to a report released Wednesday that warns the current global economic rebound from the 2008 crisis could falter.

    The Organization for Economic Co-operation and Development’s twice-a-year economic outlook report said the world economy is in an uneven recovery and confronting far more “downside” than “upside” risks.

    The negative risks include the possibility of an inflationary rise in oil and other commodity prices, a deeper slowdown in China’s economy, continued deficit problems and housing market weakness plaguing the United States and Japan, and mounting sovereign debt problems facing Europe.

    “A concer n is that, if downside risks interact, their cumulative impact could weaken the recovery significantly, possibly triggering stagflationary (high inflation in a stagnant economy) developments in some advanced economies,” Pier Carlo Padoan, the OECD’s deputy secretary-general and chief economist, said in his introduction to the report.

    “All this suggests that the global crisis may not be over yet.”

    The Canadian economy, which has consistently scored near the top of the class in OECD analyses since the 2008 crisis, is given a relatively rosy outlook.

    Canada’s “vigorous” rebound over the winter is expected to moderate in the near term due to the impact on global trade of the Japanese tsunami and nuclear disaster, combined with reduced spending from heavily indebted households dealing with softening housing markets.

    But the economy “will speed up again as unemployment recedes and the global recovery gains traction,” said the OECD, a Paris-based social and economic policy think-tank funded by 34 Western industrialized member countries, including Canada.

    Plans by Prime Minister Stephen Harper’s government to slash the deficit are expected to include a reduction in wages for publicsector workers, which will “weigh on household income,” the OECD said.

    Household debt, at a record 149 per cent of Canadians’ disposable income in late 2010, will also dampen consumer spending.

    The quiet satisfaction of watching real-estate values rise steadily is also expected to come to an end.

    Risks faced by the Canadian economy include fiscal belt-tightening in more indebted countries, especially the U.S., which could trim demand more than expected from Canada’s key trading partners.

    The OECD economists recommended that Bank of Canada governor Mark Carney’s “highly stimulative” policy of keeping interest rates at or near rock-bottom levels should end in order to preempt rising inflation.

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