“Canadian housing prices will fall 10% over the next several years and homebuilding will slow sharply in 2013, but the country’s recent property boom is not expected to end in a U.S.-style collapse, according to a Reuters poll.
The survey of 20 forecasters published on Friday showed the majority believe the Canadian government has done enough to rein in runaway prices, preventing the type of crash that has devastated the U.S. market for years.
“This isn’t a sharp correction, this isn’t a U.S.-style correction, it’s just simply an unwinding of the excess valuation that was created by artificially low interest rates for a long period of time,” said Craig Alexander, chief economist at Toronto-Dominion Bank.
“I would emphasize that while a 10% correction sounds scary, in actual fact, this would be a healthy outcome.”
“Vancouver prices were forecast to fall 2.7% in 2012 and 3.8% in 2013, with an eventual decline of 12.5%.”
- from ‘Canada home prices seen falling, but not crashing’, Andrea Hopkins, Reuters via Financial Post, 9 Nov 2012
“Canada’s house prices are expected to drop and stay down for a decade, says a new report from Scotiabank that also warns of an “adverse shock” to the economy when the decline comes.
The bank’s latest housing outlook predicts a 10-per-cent price decline across Canada in the next two to three years, driven by larger declines in the Toronto and Vancouver markets, “where supply risks and affordability pressures have the potential to trigger larger price adjustments.”
The report notes that previous housing market downturns — in the 1970s and 1990s — took eight or nine years to bounce back to price levels seen before the decline.
“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,” the report stated.
The bank also warned that “balance sheets heavily skewed to real estate leave Canadians vulnerable to an adverse shock, including a sharp rise in unemployment and/or a sharp drop in home prices.”
- from ‘Canada House Prices To Drop, Stay Down For A Decade, Causing Unemployment, Scotia Says’, Daniel Tencer, The Huffington Post Canada, 8 Nov 2012.
Analysts in the industry are largely commentators, rather than instruments with any convincing positive predictive capacity. Their predictions are noteworthy to the extent that up until very recently there was a broadly held belief that housing prices would not fall at all. So, for the media to be announcing even the idea of coming drops is significant. But, from a quantitive perspective, their consensus about price drops being relatively benign reflects characteristic hope over substance.
Based on the size and all-consuming pervasiveness of the speculative mania, and on price levels determined by fundamentals such as rental incomes, we foresee larger than 10% drops for the nation and far, far larger drops for Vancouver (50%-66% real, peak to trough). Aren’t we already at about 10%-12%-off for most RE sub-types in Vancouver?
And another point: it took 25 years for real prices from the 1980-81 peak to be regained in Vancouver, not 10.