Money & Career

Is the Canadian housing bubble about to burst?

If you believe this report by TD Economics, Canadian home prices are set to drop by just over 10 percent in the next two years. What does a 10-percent drop look like? A quick bit of math shows that if you bought a house last month for $350,000 it would be worth $35,000 less by 2013 — a loss in value of $17,500 for each of the two years.

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If you believe this report by TD Economics, Canadian home prices are set to drop by just over 10 percent in the next two years. What does a 10-percent drop look like? A quick bit of math shows that if you bought a house last month for $350,000 it would be worth $35,000 less by 2013 — a loss in value of $17,500 for each of the two years.

If you live in Toronto or Vancouver, you can expect prices to drop even more — 14.8 percent for Vancouver and 11.7 percent for Toronto. 
The economists at TD call this a “modest” drop. But to me, it actually looks pretty steep, don’t you think? To start, $35,000 is a lot of money. It might not seem like a lot when you’re spending ten times that much to buy a house, but it’s still a good chunk of change, especially if you find you either want or need to sell your house in the next year or two. 
At the same time, the TD economists are also talking two years — what about over the longer-term? Will prices stay at that level or will they drop more, as this report from a couple of weeks ago suggests (think 25 percent over the next several years).
The bottom line is that most economists think house prices are headed down — and for many Canadians, that’s not something we’re used to. For those of us in our 20s and 30s, rising home prices are the only thing we’ve ever known as adults — buying a home has been a fantastic investment, with prices moving up every year for the last decade. So you can buy a condo today and sell it in a few years without worrying about losing money. 
With prices going down (or even staying flat) it’s finally time for a real estate reality check. No, it doesn’t mean that you shouldn’t buy a home, but if you do you really need to think long-term. Make sure you plan to stay put for at least five years or longer — and make sure that you can afford payments on the house if interest rates go up a few percentage points (which they will). 
Are any of you worried about falling house prices? And if so, what are you doing about it? 
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