Is Canadian housing market due to drop?

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Two major players in the Canadian housing market both said this week that the housing market in Canada is due for a correction or a drop in the near future. Royal LePage thinks that the market will begin to decline within the next 6 months. CIBC also believes that the housing market will take a turn downwards, but have varying degrees in terms of predictions. They are saying it will do anything from stagnate for a long time to drop drastically by 25%. They think the most likely scenario is a gradual decline by 10%-15%.

It is not the first time that people predicted the housing market to drop in Canada. In fact, since the housing crisis in the U.S. in 2008, every few months someone regarded as an expert said that Canada is next in line, although not as bad as the U.S. It’s been almost 3 years since the U.S. housing crisis began and all we have seen in Canada are prices going up, up, up. Unbelievably low interest rates certainly play a role in that price increase since more people are entering the market.

In the last 2-3 months however, the price increase in Toronto has been very high. I have seen prices jump right before my eyes and have also witnessed inventories disappear. Older condos in the GTA are sold as soon as they are listed, often times above asking price. All this is happening while income levels are not really going up. What this means is that at some point something has to give. This is the basis for experts saying that prices will drop at some point. The question is when? This is something that no one really knows.

What is likely is that this uncertainty of when the price drops will occur will cause some people to misjudge the market. Some will buy a home right before prices drop or they will wait far longer than they wanted to and hope that the market correction finally takes place. I will be curiously following older condos in the GTA as a mini guide to the greater Canadian housing market.