Canadian real estate experts disagree over house price falls

  • 13 years ago
  • Uncategorized

A recent claim from a leading British economist that property in Canada could be facing a 25 per cent drop in values has been questioned by leading property experts in the country.

Whilst Canadian property prices are expected to stabilise in the short to medium term, such a large correction in prices is unlikely, according to many leading property professionals.

Prices of property in Canada rising much faster than incomes

London based Capital Economics’ recent report argues that the recent boom in prices of property in Canada has ‘resulted in the largest rises in house prices ever seen in Canada.’

And, following similar comments from Bank of Canada Governor Mark Carney, they wrote: ‘we think [a bubble] exists and we expect a major correction in Canada’s housing market of up to 25 per cent over the next three years.’

The economists believe that it is an affordability issue which will result in a price correction.  Between 1999 and 20101, the average value of property in Canada increased by 7 per cent a year, triple the rate that incomes grew in the same period.

The Vancouver Sun reports that ‘by 2010, the average price for a two-storey home on a national basis hit $314,000 (£203,370), which was roughly five times the $58,347 average disposable income per person.  That is well above the long-term historical average of prices equalling 3.5 times average disposable income.’

Experts believe property prices in Canada set to remain high

However, other analysts dispute Capital Economics’ claims.  Tsur Somerville, director of the centre for urban economics and real estate in the Sauder School of Business at the University of B.C, believes that property markets can remain out of price/income balance for a long time.  He said: “The fact they’re out of balance, in an economic sense, doesn’t mean they’re going to get back into balance on anybody’s particular timeline.”

Helmut Pastrick, chief economist for Central 1 Credit Union, also believes that property prices are set to remain high as people are forced to spend an increasing part of their income for shelter in a more crowded world.

He said:   “The world population is seven billion, climbing to 10 billion, and the planet isn’t growing.  Something has to give.”

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