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Canada house market lags US crisis by 2 yrs -Merrill
TORONTO, Oct 28 (Reuters) - The Canadian housing market is edging toward a major downturn as overbuilding is adding to already "voluminous" supply, Merrill Lynch economists said on Tuesday.
Economists David Wolf and Carolyn Kwan said developments in the Canadian market lag similar developments in the U.S. market by about two years. They said the ramp-up in Canadian construction may even be larger than it was in the United States, with more units, largely condos, being built in each of Toronto and Vancouver than in all Canadian cities combined a decade ago.
"Though the consensus does seem to be gravitating towards our view of a sustained downturn in the Canadian housing market, we still do not sense any particular alarm in either the policy-making or forecasting community," the Merrill economists said in a note.
"We ourselves are getting more alarmed by the day."
Housing construction in Canada is just off the record high set in May, and 97 percent above the long-term average, Merrill said. That compares to 54 percent off the long-term average in the United States in 2006.
As of last month, inventories of "unabsorbed" new single-family homes were up 56.1 percent year over year, which is close to the levels seen when the last housing bubble in Canada popped in the late 1980s, the economists said. Two years ago, at its peak, inventories of unsold new single-family homes in the United States were up 26.5 percent over a year earlier, Merrill said.
Tuesday's report builds on Merrill Lynch Canada's bearish view on the housing market. Last month it published a report saying Canadian households were overextended and that the market was too optimistic about the prospects for the housing sector and the overall economy.
Economists are divided on how deep a downturn in housing activity will be. Data has supported a slowing in the housing sector but nowhere near the crisis that has hit the United States. ($1=$1.29 Canadian) (Reporting by Ka Yan Ng; Editing by Peter Galloway)
