"A 15 per cent to 40 per cent crash in prices, depending on the market -- with Vancouver and the Lower Mainland most at risk - is now a certainty," Turner told ctvbc.ca."
Conflicting reports came out recently about the Canadian housing market. Is a real estate bubble about to burst or is there even a bubble in the first place? The answer varies depending on the source. The Canadian Centre for Policy Alternatives (CCPA) believes in the bubble but the University of B.C. business professor, Tsur Somerville, who specializes in real estate, does not agree with that theory.
"I would have thought maybe two and a half years ago this was more of the story," says Somerville.
Somerville suggests that the bubble scenario was more suited to two years ago at a peak in pricing. Actually, Somerville is not alone in his opinion. Cameron Muir, chief economist for the B.C. Real Estate Association, also questions the CCPA report. All major Canadian centres (Vancouver, Toronto, Calgary, Edmonton, Montreal, and Ottawa) are quoted in the report. Vancouver is said to be headed for the worst situation with an expected loss of $200,000.
The numbers in the report (15%-40% crash in prices) are making real estate experts take notice and offer some opposition to the CCPA conclusions. Of course, booms are generally followed by busts and house prices have been high in Canadian cities. The report referred to the model of the 2006 US housing crisis. Yet experts who oppose the CCPA report point out the differences between the Canadian and US real estate markets.
It does not necessarily follow that Canadian real estate will experience the same crisis as its American counterpart. Some experts do not envision the meltdown predicted in the recent report. They can accept the possibility of 'levelling out' in the future or 'correction' in the market. Yet an all-out 'crash and burn' is not in the cards for Canadian real estate – at least not according to some knowledgeable experts.
House prices in Canada are, however, way above median incomes. During the last decade, housing prices were three or four times the median income. Yet in 2010, prices are in the range of 4.7-11.3 times the same amount. The CCPA believes that if there is a rise in mortgage rates then affordability will go out the window. The report indicates that Canadian housing has not been such a state in the last 30 years.
It suggests that the most important factor is not whether or not a bubble exists but what will happen next with Canada's housing. The previous strength of this market served as a type of protection for the banks from financial crisis. The strong housing market contributed to the success of Canadian banks when those around them were in turmoil.
The Canadian Centre for Policy Alternatives points to the fact that Canadian households are carrying considerable debt. When home owners are debt-ridden, even the slightest change can cause a calamity. Job losses or higher rates can impact the prices of homes and the borrowers themselves.
A housing market that is out of step can affect the whole economy. Yet it would take something drastic to trigger a huge decline such as the CCPA predicted for Vancouver. We need to keep our eye on this one!
Do You Think The Bubble Is About To Burst In Canadian Housing?
Image courtesy of aboutnwrealestate.com