Quote:
Originally Posted by Burninator
Canadian Housing Prices Inflated
Canadian homeowners should be prepared for a fall in housing prices, warns a study that estimates homes in most cities are overvalued, and by as much as 25 per cent.
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Only in Toronto are prices in balance with rents, the study concluded. In Halifax, Montreal, Ottawa, Regina and Winnipeg prices would need to drop by at least 20 per cent to be in balance and in Calgary by seven per cent and in Vancouver by 11 per cent.
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In dollar terms, the amount by which house prices would have to fall to bring them back into balance in each of the overpriced cities was: Calgary, $32,000; Halifax, $58,000; Montreal, $68,000; Ottawa, $81,000; Regina, $87,000; Vancouver, $85,000; and Winnipeg, $74,000.
That houses are overpriced doesn't, however, guarantee that they will fall, it said.
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This study is tricky because (as I understand it) they looked primarily at rents in each city and average income in each city.
So if rents stagnate/fall (which they are) and income stagnates (which it likely will) then the projected support for prices will also drop. These modest(?) price drops predicted are based on everything else being equal in growth per year to these past few years (where those growth rates were as inflated as home price growth rates they support).
I personally think down 20% (or more) is more likely than down 7% -- the truth may be somewhere in the middle.
More importantly though is that I see high interest rates in a few years eating into affordability and then high inflation/stagflation eating into underlying home values.
So it can drop fast now or drop slowly over 10 years.
Either way it drops back to the long term historical norms. (<Which should be a no-brainer, that is why they are called 'long term historical norms.' Greed and/or fear seem to blind some people to that though...)
Claeren.