Canada property prices could fall 25 per cent

Tuesday, February 15, 2011

Canada property prices could fall 25 per cent

Canada home prices could decline by as much as 25 per cent in the next few years, creating lots more affordable options for anyone looking to buy a property in Canada, according to a report by Capital Economics.

The company report said: "The recent housing boom has resulted in the largest rises in house prices ever seen in Canada, which have been similar in magnitude to those during the recent boom in the US. Unfortunately, the subsequent falls in prices could also be just as severe as those seen elsewhere."

"We predict that nominal house prices are likely to decline by a cumulative 25% over the next few years, in the same ball-park as the recorded declines in the US and other countries. Growth in future personal disposable income per worker will not close the large gap between house prices and income within any reasonable length of time."

Capital Economics used various housing affordability ratios to rationalise high house prices relative to income and also took inflation into consideration, along with future interest rate rises.

The company added: "Even small rises in official interest rates have been shown to have a big effect on homeowner confidence. If the Bank of Canada does resume its monetary tightening this year, this could easily prove to be a tipping point for a house price collapse."

To read our guide on buying in Canada, click here.


A Place In The Sun