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Blog by Kevin Wong

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Canadian Realty Market on Steady Ground: Economist

Despite the recent slowdown in the Canadian housing market, there is no reason to believe the country is heading for a full-blown downturn, Peter Norman, Chief Economist, Altus Group tells BNN.

Canada has seen three major housing downturns in the last three decades including one in Calgary in 1982, another in Southern Ontario in early 1990s, and in Vancouver in 1998.

A historical backdrop such as this makes investors nervous at the very first sign of a pull back.

"In each of the previous three cases, the housing prices declined on a sustained basis, month after month," he tells BNN. "It hasn't been because of an imbalance in the market [or due to] housing debt. It's always been a case where there's been a sharp external shock to the economy."

A supply imbalance, he adds, is caused when people feel forced to sell for some reason and "it's not clear if we're in a situation where people need to sell."

Norman, however, admits that overseas money pouring into the Canadian housing market, continued weakness in China and tepid U.S. demand for Canadian products could all be potential threats [to Canada's economy].

"The energy sector has a slow and steady forecast right now, but it also has some of Canada's larger risks [due to] the U.S. becoming more energy independent and [the recent] weakness in energy prices," he cautions.

For now, though, Norman rules out existence of any meaningful risks on the horizon.

"You might want to think about international headwinds and where they're going to hit," he says. "In general, our macro view is pretty sanguine [which involves] a slow and steady growth kind of environment for Canada."

Canadian housing market is quite fragmented with large regional variations in prices. Some investors are concerned that Toronto and Vancouver housing markets are overheated and that ripples of a major correction there could be felt across the country.

Vancouver, argue detractors, is exceptionally expensive relative to the buying power of its residents and that is bound to put downward pressure on prices.

However, Norman disagrees.

"Vancouver has a price point that's been pretty stable and at a higher level than most markets in Canada," he says. "Vancouver continues to be a very attractive place for migration and the economic forecast for B.C. for the next couple of years is pretty strong."

Allaying widespread fears of a sizeable correction, Norman says far from such a threat, Vancouver's real estate is poised to benefit from a pick up in the U.S. housing market.

A strong U.S. economic recovery bodes well for Canada's manufacturing industry, a large portion of which is concentrated in Western Canada.

An increased demand for our commodities such as lumber and oil south of the border serves to propel economies of provinces that produce them thereby helping prop up housing prices in these markets, especially Vancouver.

Further, much of the new development in Vancouver have a "strong affordability characteristic" which suggests any concerns of a looming crash may be unfounded, he adds.