Business

Harper dismisses gloomy report on Canadian housing market

Conservative Leader Stephen Harper says he disagrees with a report by brokerage firm Merrill Lynch that warns Canada could be headed for a housing and mortgage meltdown similar to the one that has devastated the United States economy.

Conservative Leader Stephen Harper says he disagrees with a report by brokerage firm Merrill Lynch that warns Canada could be headed for a housing and mortgage meltdown similar to the one that has devastated the United States economy.

Conservative Leader Stephen Harper addresses a gathering Wednesday in Vancouver. ((Jonathan Hayward/Canadian Press))
The report, issued Wednesday by Merrill Lynch Canada economists David Wolf and Carolyn Kwan, said many Canadian households are more financially overextended than their counterparts in the U.S. or Britain.

They said it's only a matter of time before the "tipping point" is reached and the housing and credit markets crack in Canada.

"I don't accept that conclusion, not at all," Harper said while campaigning in British Columbia.

"We have seen the housing market and the construction market much stronger in Canada than in the U.S.," he said.

Canadians not as confident as Harper: Layton

Harper said Canadian financial institutions have also taken a different approach to lending than their American counterparts.

"We don't have the same situation here with the mortgages as was the case in the U.S. with the subprime mortgages there," he said. "So, therefore, I think that our market is in a much stronger position."

NDP Leader Jack Layton said Canadians aren't feeling as confident as Harper. 

"I can tell you, the families of Canada became worried a long time before Merrill Lynch began to notice what was going on because they couldn't pay their bills and were worried about their savings," said Layton.

An NDP government would order a top-to-bottom review of financial institutions to

protect Canadians' savings, he said.

Liberal Leader Stéphane Dion blamed Harper's minority government of the past 2½ years for making the economic situation worse by cutting the GST rather than income taxes.

The Merrill Lynch Canada report acknowledges that the analysis is more pessimistic than the prevailing view.

Would be 'foolish' to rule out risk: Wolf

Wolf stressed that the report raises the possibility of a similar situation, not a certainty, calling the situation in the U.S. "unprecedented."

But he warned that parallels can be drawn between the U.S., U.K. and Canada with respect to household overextension.

"I certainly wouldn't be doing my job and I think as Canadians we would be foolish to rule out the risk that we could see something similar up here."

Many economists have been saying that Canada's housing and banking sectors are much more stable than their American counterparts, and will likely slow down but not crash.

But Merrill Lynch Canada — whose U.S. parent is one of the biggest victims of the crisis in financial markets arising from the American housing and mortgage meltdown — said Canadians should be wary.

Household net borrowing in Canada amounted to 6.3 per cent of disposable income in 2007, which is more than households in the U.K. and not far off the peak reached by U.S. households in 2005.

The report also said housing prices are now falling and inventories of unsold homes are rising sharply in Canada, suggesting that the market turnaround will not be a transitory phenomenon.

However, the prevailing view is that Canada's lenders have issued few of the type of subprime mortgages that sparked the U.S. crisis. In addition, a recent study showed that Canadian residential properties are not overvalued in most cities.

With files from the Canadian Press

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