Monday, August 11, 2008

Sask. housing prices not headed for bust: home builders

The Canadian Home Builders Association is taking issue with a recent report that says Saskatchewan's housing boom is headed for a bust.

In a report released by Merrill Lynch Canada last week, economists David Wolf and Carolyn Kwan say housing is more than 10 per cent overvalued in a number of cities, including Vancouver, Calgary, Edmonton, Sudbury and Montreal — with the situation in Saskatchewan's two biggest cities the most extreme.

"We're most concerned about Saskatchewan, where the doubling of house prices in both Regina and Saskatoon over the past two years has led us to estimate that these two markets are now close to 50 per cent overvalued," the report says.

With housing overvalued that much, Saskatchewan could be entering an "extreme zone" where the risk of a bust rises materially, the report says.

However, the Saskatchewan branch of the Canadian Home Builders Association said the comments in the Merrill Lynch report are "general in nature to say the least" and said a more in-depth analysis of Saskatchewan's complex market is called for. In a news release, the association also disagreed with the notion that a Saskatchewan housing downturn looms.

"Our province's impressive level of growth suggests otherwise," it said, noting that the Conference Board of Canada, a business think-tank, has forecast Saskatchewan's economic growth will lead the country this year with a 4.2 per cent increase in gross domestic product.

Rather than being overvalued, the housing market in Saskatchewan is now "sufficiently balanced," the home builders association said.

However, housing starts must continue at the current pace for Saskatchewan to maintain its prosperity, it acknowledged.

In particular, there needs to be more appropriate housing for low-income families, first-time buyers, new entrants to the workforce, students and seniors on fixed incomes.

The Merrill Lynch report says housing prices in Edmonton and other parts of Alberta are overvalued, too, but not to the extent that they are in Saskatchewan.

"Despite the qualitative view that Alberta has been the centre of the housing boom in Western Canada, it now looks like Alberta's neighbours may be at greater risk of [a] housing bust than the province itself," the report says.

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