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Friday, July 8, 2011

Housing correction coming says CIBC

CANADA - The Canadian housing market is due for a crash (ahem, a correction), but there are those who say it will likely be a slow decline instead of a sharp drop, according to the Canadian Imperial Bank of Commerce.

“While house prices are likely to adjust as interest rates eventually climb, the national pace of any correction is likely to be gradual,” says Benjamin Tal, deputy chief economist at CIBC. Tal believes the market will not crash abruptly because the two key triggers for a major drop are absent from the market.

“A significant and quick increase in interest rates and a high-risk mortgage market that is sensitive to changes in economic factors are not in play in Canada,” says Tal.

(But is that the only things that can spur a real estate market crash?)

The CIBC report joins a chorus of other analysts forecasting a correction in the overheated Canadian real estate market.

Capital Economics says housing in Canada could be overpriced by 25%. With the average price of a Canadian home now at $346,950, home buyers who wait until after the drop could save $86,000.

Many analysts think that a crash is an unlikely worst-case scenario. However even if home prices dipped by 10%, that would amount to $34,000 in savings when buying a home.

Or house prices might simply stagnate for several years, says Tal.

“The likelihood is that prices in the Canadian market and its sub-segments are higher than what can be explained by factors such as income growth, rent and household formation,” Tal said. “Given that, the housing market will eventually correct. The only question is what will be the mechanism of that correction.”

Affordability has become a major issue for home buyers as average prices have risen every year for more than a decade to what is now ridiculous levels in cities like Vancouver or Toronto [where I live].

To me if the housing market falls, fast or slow, it doesn't matter to me, it increases my chances of being able to buy a place someday.

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