IMF calls Canadian housing market “over heated”

The doomsayers continue to gather. First  Mark Carney from the Bank of Canada, now the IMF, in its annual report on Canada's economy, concludes that average home prices are 10% higher than they should be. From that conclusion, the IMF suggests that house prices could drop by that amount or more, depending on external shocks to our economy, which could result in a 1.1% drop in personal consumption, leading to a .5% drop in GDP. Check out Kevin Carmichael's report December 23, 2011 in the Globe and Mail (http://bit.ly/s2lQft).   The IMF goes on to address the impact of  a drop in housing prices, which may be triggered by an abrupt drop in commodity prices, resulting in a severe downturn in construction. This could lead to a 2.5% loss in GDP over 2 years, which would have a dramatic impact on the on the Canadian economy and spending habits of Canadians who already have household debt equal to 100% of disposable income.   The usual potential impacts of external factors, such as US and European economies, and the resulting lack of exports are again the potential culprits for slowdown in the housing market.   However, nothing that has happened to date has impacted on the market. Our employment figures, although not stellar, are far better than most other countries. As well interest rates continue to remain at historic lows, making real estate, and residential real estate in particular, extremely attractive to homeowners and investors.   The IMF also suggested that the government review the rules that govern CMHC to ensure that there are sufficient oversight. It does not suggests there are any problems with CMHC, but suggest the government ensure that there is proper overview of  the Crown corporation  given its major role in back  stopping the residential mortgage market in Canada. Again, IMF raises alarm bells for no valid reason.   The IMF report does not really shed any new insight to the Canadian economy. External factors continue to hover around us. However, unless there is some major further economic catastrophe, there is nothing in the current environment that indicates any new shock that would be coming to impact our housing market.