Canadian Property Prices to Fall

12 November 2012 - Which Way to Pay

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Canadian Property Prices to Fall

The news from a Reuters poll that house prices are likely to drop by around 10% has made a lot of us slightly nervous about our financial position. However, it is important to realise that this is not some sort of property market collapse which is going to ruin our economy.

House prices in Canada are likely to drop by 10% over the next few years and housing starts may fall more than 17% by July 2013. It is generally accepted that the government has done what it can to ensure that property prices have remained tenable rather than allowing the market to boom increasing risk of a U.S. style property market collapse. The Chief economist at Toronto – Dominion Bank, Craig Alexander has emphasised that the government’s actions are simply reducing the artificially high property valuation which are a result of “low interest rates for a long period of time.”

Although Canadian house prices may drop 10% over the next few years this is no bad thing from the point of view of limiting Canada’s exposure to a property boom and bust. It is also good news for first time buyers trying to get onto the property ladder. In some areas house prices have started to stabilise and even slightly fall but they are still considerably higher than they were in March 2009.

One concern is that with falling prices comes less construction and in turn this can all be bad for the economy. David Madani, an economist at Consultancy Capital Economics is not so optimistic regarding the issue of falling house prices. Madini believes that Canada’s overbuilding is a classic “symptom” of “housing bubbles.”

However, the steps which the government has taken to discontinue 40 year mortgages in favour of 25 year mortgages is a sensible way or starting to prevent buyers taking on too much debt when purchasing a home. It may not be so easy to buy but at least fewer people are going to be extending themselves too far beyond their means. This isn’t going to be the most popular news for everyone but it is a step in the right direction to avoid a far bigger financial problem.

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