UPDATE 1-Canada reports square off over housing bubble risk

* CMHC sees 2010 housing starts at 184,900 units

* Agency predicts house prices to edge lower in 2010

* CCPA think tank warns housing bubble ready to burst

* C.D. Howe says risk of bust mitigated by policies
(Adds C.D. Howe report paragraphs 14-17)

TORONTO, Aug 31 (BestGrowthStock) – Housing starts in Canada should
rise moderately this year, the federal housing agency said on
Tuesday, while two research groups published reports to revive
talk of a housing bubble but arrived at different conclusions.

Canada Mortgage and Housing Corp (CMHC) said in its outlook
that it expects housing starts of 184,900 units in 2010,
slightly ahead of its May outlook for 182,000 units.

There were 149,081 starts in 2009.

For 2011, CMHC forecasts 176,900 starts, down slightly from
the 179,600 it forecast in May.

For the existing-home market, CMHC chief economist Bob
Dugan forecast 450,000 to 485,700 resales in 2010, with a
specific prediction of 463,800. For 2011, he sees 425,000 to
490,700 resales, with a specific forecast of 456,000.

CMHC did not provide a forecast for an average price but
said it would “edge lower” through the end of this year then
rise modestly in 2011.

The CMHC forecast follows data earlier this month that
showed housing starts fell for a third straight month in July,
while sales of existing homes fell 6.8 percent in the same
month, offering further evidence the recently hot housing
sector is no longer playing a starring role in the economic
recovery. [ID:nN16264769]

The recent data, which followed the implementation of
stricter lending rules and higher interest rates, has deflated
talk of a housing market bubble.

THINK TANKS SQUARE OFF

But on Tuesday, the Canadian Centre for Policy Alternatives
(CCPA) released a report saying there is still a risk of a
housing bubble in six markets.

After examining trends in home prices in Toronto, Ottawa,
Vancouver, Calgary, Edmonton, Montreal, between 1980 and 2010,
the independent research group found price increases in those
cities were “outside of a historic comfort level”.

“The bursting of housing bubbles is a rare event in Canada,
but the steep rise in house prices in so many cities displays
all the hallmarks of an accident waiting to happen,” says the
report’s author, David Macdonald, a CCPA research associate.

In a worst-case scenario, the report predicted homeowners
in Edmonton and Montreal could be hardest hit, losing 38
percent and 34 percent, respectively, of their property value
in under three years. Vancouver homeowners would be hit worst
by dollar value, losing almost C$200,000 ($187,793).

The think tank found that house prices tended to hover
within a narrow range of between 3 and 4 times the annual
median income in the relevant province, before 2000. Currently,
home prices are 4.7 to 11.3 times the median income, the CCPA
report said.

Another think tank, the C.D. Howe Institute found that
national housing policies have “worked well” and should help
mitigate the risk of a massive wave of defaults in the future.

“To evaluate the likelihood of a U.S.-style housing market
crash in Canada, one first needs to understand what caused the
U.S. housing boom and bust,” Jim MacGee, an associate professor
of economics at the University of Western Ontario, wrote in the
C.D. Howe report.

Tighter underwriting standards were a main factor that has
protected the Canadian housing market, compared with the United
States, which saw high-risk mortgages eventually lead to a
rapid increase in foreclosures, the report argued.

“This difference in government policy has helped to
discourage the build-up in Canada of a large number of
high-risk mortgage loans,” the report said, adding that
policymakers would be well-served to remember these lessons
should “pressures to relax underwriting standards reoccur in
the future.”

($1=$1.06 Canadian)
(Reporting by Ka Yan Ng; editing by Rob Wilson)

UPDATE 1-Canada reports square off over housing bubble risk