7 September 2010
Here are some of the reasons for such thoughts and their explanations:
- First of all, this year’s housing resale activity decline provoked these fears of Canadian economic slowdown.
- One of the main reasons is the belief that a sharp price increase in the past several years can reflect the bubble-like conditions.
- Yes, we do think today housing prices are historically elevated, but we don’t believe something horrible is going to happen.
- The housing affordability has always been one of the best market state indicators. It has deteriorated lately, but it’s still much better than in the late 80s and early 90s.
- It’s quite possible that the potential affordability decline will cool the housing demand, but it certainly won’t freeze it.
In the whole, the home prices are expected to stay reasonable, though in Vancouver and, maybe, Montreal, the prices can fall in order to balance the low affordability level.
The main thing is that people are afraid of another 2001 situation, when the home prices were doubled and the household income was up only by 50%. They think it can happen again. But still, according to historical patterns and economic trends, today there are no significant “bubble” signs.