Holes in housing market data have economists worried
Canada’s financial leaders are under pressure to provide a clearer picture of the housing market, in the face of conflicting opinions about the health of a sector that is crucial to the national economy.
The issue came to the forefront Thursday after Canadian Imperial Bank of Commerce economist Benjamin Tal released a strongly worded note, titled “Flying Blind,” in which he said “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.”
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His laundry list of information that’s missing includes the share of foreign investors in the condominium market, the distribution of mortgages by credit score and the average down-payment.
Canada’s housing market information is not nearly as detailed as that available in the United States and the lack of data has contributed to strongly opposed views about the health of the market, with some commentators saying home prices are in bubble territory, while others insist there is nothing to worry about. Mr. Tal chose to speak out about his concerns because he believes new financial leadership in Ottawa provides an opportunity for change.
“The time to act is now,” he wrote. “With fresh players steering our policy ship, the new Finance Minister, the new Governor of the Bank of Canada and the new head of CMHC have an opportunity to chart a course that [will] reduce any risk of a real estate bubble by making data availability a top priority.”
Mr. Tal is not alone in his frustration.
“It would be useful to have more information about personal debt and the mortgage market,” says Toronto-Dominion Bank chief economist Craig Alexander. “If we think that Canada has a problem with excessive personal debt, you need the data to actually assess the vulnerability and what the associated risks are. But the reality is we actually have quite limited information.”
John Andrew, a real estate professor at Queen’s University, agrees more information is vital. “True, we’re not in any sort of crisis now, but that’s only because interest rates are so low, and it would be very much in the public interest to have all of that data that Benjamin Tal is talking about released publicly,” he says.
He’s calling on the banks to make the first move, suggesting that CIBC, for example, could get the ball rolling. “Most of what would be very useful to consumers and to the residential real estate industry could be released without surrendering any significant competitive advantage,” Mr. Andrew says.
Finance Minister Joe Oliver said in an e-mailed statement Thursday that one of the government’s key objectives is ensuring the long-term stability of the housing market. “In this regard, the government has access to – and very closely monitors – a wide variety of housing data,” he said. “I continue to closely monitor Canada’s housing markets, and stand ready to implement further measures if necessary.”
He noted that Canada’s banking regulator, the Office of the Superintendent of Financial Institutions, has been asking banks for more data about the housing market.
Not all of that data is publicly available. But a spokesperson for OSFI the Superintendent noted by e-mail Thursday that the regulator has forced banks to publicly disclose more information in areas such as home equity lines of credit and amortization periods.
Observers still have to go to multiple sources to build up a picture of the residential housing market. The Canadian Real Estate Association, which represents realtors, tracks sales and prices of existing homes, while Canada Mortgage and Housing Corp., a Crown corporation, monitors indicators such as housing starts. Statistics Canada watches consumer debt, the Bank of Canada looks at how much mortgage credit the banks have given out and private research firms examine the new home and condo markets. But notable gaps remain.
“Because there is a bit of a void on housing data we do have a lot of ill-considered opinions on the real estate market, and it’s hard to completely refute some of the wild talk we’ve had in recent years because the data set is limited,” says BMO Nesbitt Burns chief economist Douglas Porter.
He cautions, however, that more information is not a panacea. Deeper U.S. data did not prevent a housing boom and crash in that country.
Nevertheless, economists say that better information would help to ensure the proper steps are being taken to keep the market healthy.
“If we want well designed public policies, they should be based on sound data,” Mr. Alexander says. He noted that compiling good information can be expensive and pointed to budget constraints at entities such as Statistics Canada as a problem. “In my mind, we’re actually going the wrong direction,” he says.