Keeping up with the American Joneses
By Peter Diekmeyer • Bankrate.com

Sociologists have long puzzled over an interesting fact that continues to baffle economists -- many people don't measure their wealth in absolute terms, but rather by how well they are doing relative to their neighbours. For example, someone living in a $500,000 house tends to be prouder of it if his neighbours live in $300,000 houses than he would if they all lived in houses as plush as his.

This phenomenon explains in part why Canadian homeowners seem pretty satisfied with their lot these days. While housing starts and home prices may be slumping, those numbers are still a lot better than they are south of the border. Part of the reason for that is that unlike US financial institutions, Canada's banks and mortgage companies are keeping the credit spigots open.

"On the surface there are no indications that the credit crunch ha(s) impacted the mortgage market in any significant way," writes Benjamin Tal, a senior economist at CIBC World Markets, in a note to clients last week. "Overall mortgage(s) outstanding are still expanding by a strong 13.4 percent on a year-over-year basis."

Weaker selling prices and new home construction
Tal goes on to say that things may not continue this way indefinitely, and recent data suggest he may be right. For example, although existing home sales edged up slightly last month, according to the Canadian Real Estate Association, the average selling price for those new homes was 3.6 percent lower than during the same month last year.

Selling prices for recently built homes aren't looking that great either. According to Statistics Canada, the average price of new homes sold during June increased by just 3.5 percent relative to the same period last year, the smallest jump in six years.

With house prices moderating, it should come as no surprise that builders are no longer stampeding to get their shovels into the ground. According to the Canada Mortgage and Housing Corporation, housing starts should slow to 215,475 units this year, compared to 228,343 in 2007.

One group, though, should be happy with the news: first-time home buyers. According to a report by the Desjardins Economics Studies team, housing affordability has once again improved in Canada, in part due to falling mortgage rates and slumping housing prices in Western Canada.