DERRICK PENNER
Sun
Canada is in the grip of a recession that will see housing prices deflate about 10 per cent nationally and perh a p s u p to 20 p e r ce n t i n B r i t i s h Columbia, according to Benjamin Tal, a senior economist at CIBC World Markets.
“ People say we are entering a recession, I’m saying we’re in a recession,” Tal said in an interview Monday following a presentation to the Canadian Association of Accredited Mortgage Professionals ( CAAMP).
He said Canada’s recession was sparked by slowing growth in the wake of the meltdown of U. S. housing markets. The economy will not begin to recover until American real estate bottoms out, the financial sector stabilizes and until government economic stimulus packages take hold.
Tal said that could be sometime around May next year.
He cautioned that recovery will not be a robust “ V-shaped” bounce-back. Rather it will take more of a “ U-shape” and will take some time.
Tal said Canada’s housing downturn is a recession-led correction rather than the kind of meltdown that brought U. S. markets low when large numbers of high-risk borrowers defaulted on their loans.
Tal said B. C. is likely to see deeper corrections in real estate prices, largely because values here shot up so much higher and more quickly that in other parts of the country.
“ When you double the value of your real estate over the course of breakfast, then you pay the price,” Tal said.
He said the recession still has to run its course, and was in the equivalent of “ the sixth or seventh inning” of a baseball game.
Tal told about 1,800 mortgage brokers at the Vancouver Convention and Exhibition Centre that people need a context to give them an overall picture of all the bad economic news.
The prominent economist started his presentation with a subtle joke. He launched into a recitation of the gloomy headlines about the world, the United States, Europe and even Canada being in recession, about the 1.5 million jobs lost in the U. S. and the American meltdown. He followed that up with a cheery, “ Good morning, everyone.”
Tal said the world is dealing with its biggest financial crisis since the Great Depression, but that doesn’t mean the impact will be as significant as that of the Depression.
One reason is that the U. S. Federal Reserve, the Bank of Canada and European banks stepped in quickly with bailout packages and assistance for the financial sector, he said, and governments have also been fast off the mark proposing stimulus spending on infrastructure projects.
Those measures will buy the jobs needed to get countries out of recession, he said.
However, given that the recession was caused by a buildup in American real estate markets that took 15 years to develop, “ the recovery will not be strong,” he said. “ It will be a much more modest recovery, because you cannot undo 15 years of bad economic management in one or two years.”
