Morgan: Differing opinions about continued fall of real estate prices

With the United States well on the (economic) mend, Canadians are now asking themselves: “Is it finally our turn?”

Statistics have shown that the United States has seen a 37 per cent bounce back for new home starts in December 2012 compared to December 2011—and what is good for the U.S. is great for us.

The American real estate market came to a shattering halt back in 2007 and like a contagious cold, Canada followed suit shortly after.

As our sister country experienced the effects of taking on too much debt too quickly and a substantial number of homeowners defaulted on their mortgages, the disappointing result was the speedy increase in foreclosure properties that shook  the country.

Canada ultimately faced a similar tale, but to a lesser degree.

With the United States well on the mend, Canadians are now asking themselves: “Is it finally our turn?”

According to David Madani, economist with Capital Economics, Canada better get back in line and keep waiting.

Madani is still standing by his real estate forecast that we well see a 25 per cent decrease in sale prices from coast to coast over the next couple of years.

“Assuming that sales continue to trend lower this year, then sharper demand and supply imbalances will eventually lead to widespread home price declines. We still think that house prices will decline by 25 per cent over the next year or two,” said Madani.

“The continued decline in existing home sales support our view that a potentially severe housing correction is underway.”

Among Madani’s bleak forecast statistics is that Canada’s debt-to-income ratio has recently broke the U.S. record set in 2006.

However, it has been recorded that other countries have had even higher levels if debit-to-income ratio and still managed to avoid an economic crash.

Benjamin Tal, CIBC’s deputy chief economist, agrees that prices may decline over the next two years, but not to the extent of Madani’s forecast.

“House prices in Canada will probably fall in the coming year or two, but any comparison to the American market of 2006 reflects deep misunderstanding,” said Tal.

“But the Canada of today is very different than a pre-recession U.S., namely as far as borrower profiles are concerned.

“Therefore, when it comes to jitters regarding a U.S.-type meltdown here at home, the only thing we have to fear is fear itself.”

As numbers reflect, the United States is well on the mend, while Canada, amongst all the doom and gloom, may still have a long road and sluggish return ahead.

But it will continue to follow suit with the U.S. and will ultimately bounce back.

Ceinwen Morgan has worked in the Kelowna real estate industry for the past five years.