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Canadian house prices face 10% drop: Scotia Economics


Canadian home prices are likely to decline 10 per cent over the next two to three years, before facing a period of “prolonged” softness in both prices and sales, says a new report from Scotia Economics. TORONTO STAR

Canadian home prices are likely to decline 10 per cent over the next two to three years, before facing a period of “prolonged” softness in both prices and sales, says a new report from Scotia Economics. TORONTO STAR

By Susan Pigg | 2012/08/08 13:17:00

Canadian home prices are likely to decline 10 per cent over the next two to three years, before facing a period of “prolonged” softness in both prices and sales, says a new report from Scotia Economics.

“The correction will be concentrated in the Toronto and Vancouver markets, where supply risks and affordability pressures have the potential to trigger larger price adjustments,” says the report by Scotia bank’s Global Economic Research Group.

Pent-up demand for housing has been “effectively exhausted” by the decade-long housing boom which has seen home ownership reach record levels, the report notes.

That, combined with tighter lending rules that have made affordability more of a challenge, high household debt and the inevitable increase in historically low interest rates are all adding to the “downside risks” of housing activity going forward, Scotia economists say.

But “Canada’s housing market is expected to avoid the sharp downturn witnessed in the United States and Europe,” it says, noting that “Canadian household balance sheets remain in reasonably good shape.”

Even beyond mid-decade, Canada’s housing sector faces the likelihood of a

Prolonged period of relatively modest sales and price gains,” the report says.

“Historically, long cycles of rising home prices have been followed by extended periods of persistent softness, allowing affordability to be gradually restored and generating renewed pent-up demand.”

Downturns after major housing booms in the 1970s and 1980s — defined as periods of flat or negative real price growth — lasted 8 and 9 years, respectively, it says.

There are signs that Toronto’s condo market “is beginning to self-correct” with a sharp downturn in sales in the second quarter of 2012. A record inventory of unsold units is likely to see some projects delayed or cancelled, it notes.

The equity Canadians have in their real estate assets averages 67 per cent compared to just 41 per cent in the United States which helped leave homeowners there particularly vulnerable when the housing market took a downturn.

thestar.com – Business