Losses from the U.S. subprime mortgage meltdown could top $300 billion, an economist from one of Canada's major banks told a Toronto real estate conference on Wednesday.
The bleeding isn't over yet, warned Jeff Rubin, chief economist at CIBC World Markets.
There will "continue to be downward pressure on U.S. housing prices until we get a better balance between supply and demand," Rubin said.
He expects U.S. housing equity values to drop by 20% before the crisis subsides. He estimates the current decline in values at about 11%.
"We're about 55-60% of the way through" the subprime fallout, Rubin said, adding that he expects to see mortgage default rates of up to 40% south of the border by the time the debacle ends.
Yet Rubin said the plus side of the U.S. recession is "a powerful impetus" for government and non-elected officials to intervene in the markets, just as the U.S. Federal Reserve did by injecting over $60 billion of liquidity to stem the mortgage crisis fallout.
"The Federal Reserve has gone to extraordinary lengths" to deal with the subprime issue, Rubin said, adding that one result of the crisis will likely be "a re-regulation of U.S. financial markets" and "probably a bigger regulatory role for the Fed."
Rubin said he's "still reasonably cautious" about the impact of the U.S. recession on Canadian financial markets. He forecasts a near-term correction in the TSX followed by a longer-term bullish period, with the index closing this year at around 14,000 before closing 2009 at a record 16,200.
He predicts the Canadian dollar will continue its strength to reach a premium over the U.S. greenback and sees the loonie hitting US$1.05 by the end of 2008.
By Christine Wong, edited by Nancy Girgis