Winnipeg’s Housing Market: Out of balance, nice and tight, or vulnerable to rate shocks?
April 29, 2010 9 Comments
If you’re looking for a home or even thinking about buying, a recent report by the Edward Jones investment firm might have caught your eye. It contained some jarring news: that Canada is starting to show some of the signs of being in a housing bubble.
Other reports, however, might have helped put you at ease. For example, Edmonton Journal business columnist Gary Lamphier wrote on Tuesday that the fears of a housing bubble — in which home prices soar into the stratosphere, seemingly disconnected from reality — are really only valid for three overheated markets: Vancouver, Victoria and Toronto.
What about Winnipeg, where even houses on the tough streets of Winnipeg’s North End are now selling for $100,000 or more?
Here’s what three observers from outside of Winnipeg had to say:
- The most cautionary note comes from Tsur Somerville and Kitson Swann of the Sauder School of Business at the University of British Columbia. Their 2008 analysis, based on how much the average house price would have to change to bring the rent/price ratio into line with a ratio that would be indicative of a balanced housing market, suggested that Winnipeg was a “very unbalanced” market. In their view, the average house price in Winnipeg would have to drop by 25 percent in order to restore equilibrium. Interestingly (or perversely) enough, Winnipeg was seen as being more unbalanced than Calgary, Edmonton or Vancouver; and Toronto was considered a balanced market.
- TD Economics offered a somewhat more positive take on the Winnipeg market in an October 2009 report. Their analysis concluded that Winnipeg was one of the more tightly balanced markets in Canada, and thus “in a position to outperform most other markets in terms of resale home price performance”. While TD Economics did not forecast a drop in housing prices, they did expect that prices would increase by only six percent in 2010 (versus double-digit gains in previous years) followed by a modest 1.8-percent rise in 2011 due to increased slack in the market and higher interest rates.
- Rosmi Louis and Ryan Brown of Vancouver Island University (formerly Malaspina University-College) and Faruk Balli of New Zealand’s Massey University concluded in a 2009 paper that Winnipeg’s housing market showed “a fair bit of sensitivity to mortgage rate shocks”, which might be something worth keeping in mind if rates go up in the months ahead. Sensitivity to mortgage rates was more pronounced in Vancouver and Victoria, where “the mortgage rate is more important than income in contributing to fluctuations in the housing market”, while Calgary and Edmonton are “minimally affected by mortgage rates, but substantially affected by income”.