Lamin

A small article in the Metro today that suggest house prices in Canada have risen faster that the economy should have allowed and that it predicts a 25% decrease to bring things in line.

What do people think of this and is there any evidence to support it.

All predictions in my area (Halifax ---stop it) seems to suggest the opposite due to the Irving ship contract.

We have some decisions to make, mainly we will be in a position to pay off the mortgage in February. With an exchange rate that has fallen significantly in the last few years and now this news, it might be time to pause for thought.

Your comments would be appreciated.

Alan2005

Yeah it's overdue.

Still, I would ignore things that say "there's a correction coming, but not where I live due to x or y". Lots of people say that as it's a common bias (I'll predict you'll see it in this thread).

jericho

Agreed.

Althought I dont think it'll be a correction- I think it'll be more of a crash. I think house prices are already at the tipping point.... we're just a couple of years behind what happened in the UK/US.

iaink

Ive been hearing this now for about 5 years....

Its definitely going to hit some areas harder than others when/if it finally happens.

Still, if you are in a position to pay off the mortgage then why wouldnt you? Unless its actually one of those loan deals that allows you to borrow tax free to invest... I forget what thats called

Atlantic Xpat

Unlikely in this part of the world with a buoyant economy with no sign of any downturn on the horizon. At least not in the next few years. House price inflation has slowed a bit & the market appears to be getting fairly segmented - new builds sell strongly, older houses not so much.

Were a 25% correction to happen quickly, there would be a lot of people in trouble. Or rather, in trouble if they were unable to continue to pay their mortgages. We'd be OK as we bought before the boom in 05.

ExKiwilass

I've been hearing it since 2003.

It will be interesting to see what happens.

Alan2005

There's no crashes any more - only corrections

Alan2005

Told you

If that happened nominally the Canadian economy would collapse. In real terms, I wouldn't be surprised if 25% is at the low end.

iaink

Why? (in laymans terms)

el_richo

Where we are in Vancouver, at the back end of last year properties were going above asking through bidding wars.

First quarter of this year they were going for asking

Second quarter they were going slightly under asking.

Since then, they're only selling when the seller drops the price substantially, and even then a few are still on the market.

I'll personally hold off buying for a while yet to see where things settle. Buying now in many areas of Vancouver and surrounds is a financial risk unless you're in long term.

JonboyE

It is like a broken clock - it is always exactly correct twice a day but utterly useless. Economic indicators are cyclical. Recession is followed by growth, is followed by recession, is followed by growth for ever. As long as the top of each growth and the bottom of each recession is slightly higher than the last then all is good.

Generally, the same is true of house prices. Of course they will fall at some point. The question is how steep is the fall to the bottom. Also (and I keep repeating this to the point of tedium) housing markets are not homogeneous. The price drivers for a $5m estate home in West Vancouver are completely different to the price drivers of a $300k townhome in Langley.

The market is not just stratified by geography. Two years ago in Richmond developers were building as many $2.5m homes as they could find lots for. They can't give them away now. Many are listed below assessed value. However, the older house next door sells in days for $1m - roughly 8% up on its appraised value last spring.

I am also wary of the much quoted price to average earnings ratio. I expect to retire in 10 years or so and by then everything will be paid off and I will have everything I need to maintain the material standard of living I have now. However, my income will be lower. This does not mean that my house has suddenly become overpriced.

iaink

Right, but that's Vancouver where average prices are 10 times average income. There aren't too many bits of Canada where that's the case.

I take Jons point, but Im guessing the average home buyer out there is not a retiree... Housing has to be affordable for those on the bottom rung in order for any property farther up the ladder to move as part of the chain.

el_richo

No but it's a part of Canada (which is what the OP asked), and it's where i and over 2M people live and could be impacted positively or negatively.

The market in some areas of Vancouver indicate a downward trend is underway. About bloody time.

Alan2005

Because interest rates aren't going to go up at all, let enough to keep inflation in check (and this is going to continue for a long time). Also, people don't like to sell things at a perceived loss, so unless they are forced sellers, people will just stay put and ride out the crash, more so in Canada because of the very high transaction cost.

My view has changed since 2008 because I saw governments were only too willing to intervene in the market to keep asset prices artificially high. I put my money where my mouth was too - because I bought a house. It came down to the fact that I'd rather have a house that's losing value because it still has utility value (i.e. I can live in it), as opposed to savings that are losing value because the government is stealing them through inflation.

iaink

So I can see scope for a 25% drop in that market, I just cant get my head around it happening in most of the rest of the county, baring a few obvious hot spots.

If interest rates dont go up, them people will continue to afford their mortgage payments right? A price crash seems more likely to me if rates do go up, people have to sell or banks forclose and flood the market, and higher borrowing costs will put more people off buying I would have though... not that I know much about economics.

I think I misunderstood, you were arguing any correction would be less than 25%, i though you were arguing it would be worse.