Canada economist sees risk in lack of housing data

TORONTO, April 3 Thu Apr 3, 2014 3:10pm EDT

TORONTO, April 3 (Reuters) - A lack of comprehensive data on Canada's housing sector poses risks to the country's hot real estate market by restricting information that could help investors make sound decisions, according to a prominent Canadian economist.

Benjamin Tal, senior economist at CIBC, Canada's fifth-largest bank, called on policymakers to address the issue as rising interest rates are expected to begin to test the market.

He pointed to many measures of activity in the mortgage and housing markets that are tracked in the United States but not publicly available in Canada, including credit score distribution across mortgages and homeowners' equity positions.

"The gap between the importance of the real estate market to the economy and the lack of publicly available information on it is mind-boggling," Tal wrote in a note titled "Flying Blind" released Thursday.

With a new set of policymakers at the helm, including a recently appointed finance minister and a Bank of Canada governor named last year, officials "have an opportunity to chart a course that reduces any potential risk of a real estate bubble by making data availability a top priority," Tal said.

Canada's hot housing market has so far defied expectations of a U.S.-style collapse. While some still warn the market could crash, others expect it will level off from here, or at worst suffer a correction.

While economists agree that the real test of the Canadian housing market will come when interest rates start to rise, the lack of data makes it difficult to determine how sensitive borrowers are to an increase in rates, Tal said.

The result is an "asymmetrical" debate over the scale of the pullback the market could face, he said. Banks and other lenders cannot reveal the information they hold on borrowers. That leaves the average observer to form opinions based on anecdotal evidence or "questionable macro-based indicators," such as the debt-to-income ratio and price-to-rent ratio, he said, noting these opinions are usually bearish.

"The 'Short Canada' position that is slowly gaining popularity among foreign fund managers is also based on similar partial information," Tal said.

LIMITED DATA

Still, the lack of more granular economic data in Canada relative to the United States is not exclusive to the housing sector, said BMO Capital Markets' Doug Porter, another prominent Canadian economist, when asked for comment.

That is partly due to the U.S. economy being larger and more diversified, he said.

Even so, the shortage of detail seems to be contributing to a negative view of Canada's housing market, particularly among those outside the country, Porter said.

"It is interesting how there is a lot of bearish opinion of course on Canada's housing market, but the majority of it seems to come from outside of the borders, not within," said Porter. "When you only have limited data points, you might come to the wrong conclusion."

Tal called on the Canadian Mortgage and Housing Corp, the Superintendent of Financial Institutions, the Canadian Bankers' Association and the country's credit bureaus to find ways to provide more comprehensive data.

(Reporting by Leah Schnurr; Editing by Nick Zieminski)

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