Canada’s house prices are an important risk that warrants monitoring – Goldman Sachs

Economists at Goldman Sachs are out with their latest review on the Canadian housing markets, trying to explain "Is Canada's housing market in 2017 comparable to the US's in 2007?"

Key Points:

“The sharp rise in Canada's home prices has invited comparisons to the US housing market in the run-up to the Global Financial Crisis. 

In addition, most Canadian mortgages have 25-year amortization schedules but 5-year terms, and thus many borrowers may be forced in the coming years to refinance their loans at higher mortgage rates.

Given the potential risks that a housing downturn could pose to the Canadian economy, we address here the question "Is Canada's housing market in 2017 comparable to the US's in 2007?"

We think the comparison of Canada to the US in 2007 overlooks important institutional differences between the two markets, including differences in prevailing lending standards.

That said, Canada appears to have one of the more stretched housing markets within the DM.

Our bust model indicates a 30% probability of a real house price decline of 5% or greater over the next two years, suggesting that Canadian house prices are an important risk that warrants monitoring by global investors.”