canadian housing market may see second fall
News Posted On: 30 June 2010
The Canadian Real Estate Association has downgraded its forecast for the Canadian housing market. The surprising part however, comes from the fact that the CREA now believes that Canadian house prices will see a contraction in 2011.
Unfortunately even those who are bullish about the market are forced to concede that such an outcome is more than plausible.
The global housing market crash was catalysed by the financial crisis coming from mortgage defaults in the US owing to the world having invested heavily in US mortgage backed securities. The key word being catalysed, meaning to speed up a reaction that would happen with or without the catalyst. House prices were due a fall in most markets because of gross overvaluation.
Canada was named as one of those markets that were severely overvalued, as was the UK, Australia, and many more. Looking at those now, UK house prices fell 20-30% in the initial collapse, and have since risen 5-10%, but in Canada and Australia prices are currently higher than they were at the start of the crisis. This inevitably leaves Canadian house prices vulnerable to a second crash. According to CREA this will happen in 2011.
The firm believes that the government incentives to buy have worked a little too well. Whereas the idea was to ensure those who had been ready to buy before the crisis hit would still be able to; the incentives actually pushed people to bring their plans forward and buy sooner than they would have otherwise, so as to avoid missing the incentives. This obviously leaves a larger void after the incentives. Seems obvious now doesn't it...
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