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Real estate could fall another 10%

Canadian housing prices could fall by up to another to 10 per cent before they hit bottom as the market faces a correction, says Scotia Capital Economist Derek Holt. "We will go through a correction, and the balance of risks are to the downside rather than the upside,"  Holt  says.

"Housing is past the peak as a driver of growth. However, the bulk of the price depreciation will be in the western provinces that have seen higher upside in prices", according to Holt. "The overall market remains healthy, but we are in a controlled cooling with the risk to price of maybe 5 and up to 10 per cent."

Canadian house prices already saw a year-over-year drop of 5.1 per cent in August, the most since 1996. Sales are also down by 19 per cent. Toronto-area prices meanwhile saw a 3 per cent drop in September, the first in more than a decade.

Canadian Real Estate Association chief economist Gregory Klump said he is forecasting the market to "continue to cool."

Consumer sentiment has softened over job growth due to the economic uncertainty, he said. With 75 per cent of Ontario exports tied to the United States, a moribund consumer market south of the border could mean more job losses in Canada.

Holt and Klump were part of a panel discussion organized by the real estate association in which panellists stressed that the Canadian market was in much better shape than its U.S. counterpart, where some house values have dropped in half. "We had a lot less leverage in our homes and when prices went up we weren't as good on the upside, but consequently it didn't magnify our problems on the downside," said Holt.

In Toronto, some neighbourhoods that saw quick appreciation are now correcting faster, said Ann Bosley, former president of the association.

A controversial land transfer tax in the city implemented this year may also have had an impact on sales, although "it's too soon to tell," said Bosley.

Any further price depreciation in the Toronto area will likely be less steep than in some other Canadian cities since appreciation has been steady, but not spectacular over the past few years, said Bosley.

Jim Murphy, chief executive of the Canadian Association of Accredited Mortgage Professionals, said Canadians are in better shape when it comes to debt. "Canadians have been more conservative and the market remains strong – you should be able to get a mortgage here if you need one."

The association released a report yesterday to counter an earlier Merrill Lynch study that said Canadians were overextended and in danger of falling into a downward debt spiral as in the U.S.

"Most Canadian homeowners have housing costs that are well within their comfort zones," said the report. Based on 2006 statistics, the report indicates that 90 per cent of Canadian homeowners have debt ratios below the maximum recommended 32 per cent threshold.

"In many ways we've been the poster child for a healthy market, with a sounder banking system and a more conservative approach," said Holt. "But given what's happening out there, there are risks going forward."

Source: Tony Wong reporting in the Toronto Star

October 10, 2008 in Canadian Market Forecast | Permalink


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You definitely put a new spin on a subject thats been written about for years. Great stuff, just great!

Posted by: refrigerator repair | Aug 19, 2011 2:45:41 PM

Toronto-area prices meanwhile saw a 3 per cent drop in September, the first in more than a decade.
Look the growth from last year in Oakville,Burlington. For detach house Prices are higher more than 100K.

Posted by: | Oct 10, 2008 3:48:34 PM

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