The Toronto and Vancouver housing markets are on the brink of a “severe downturn” that could hurt the country’s GDP and drag home prices down by up to 40 per cent, a Capital Economics economist says.
“I see a correction between 20-40 per cent in the Canadian housing market in five years,” David Madani, senior Canadian economist at Capital Economics, told Business News Network on Monday.
He suggests there will be a slight dip in Toronto housing prices before the end of the year, but that’s all it will take to scare many homeowners into cashing out of the market.
Last week, for instance, the Organization for Economic Co-operation and Development urged Canada to do more to address the risky Toronto and Vancouver housing markets. The warning came shortly after the International Monetary Fund urged Canada to protect against a possible correction.
“The economic outlook for this year and next appears to be worsening,” he wrote.
Madani says the proof is in the latest housing data from the Real Estate Board of Greater Vancouver and the Toronto Real Estate Board. He says the ratio of sales to new home listings is falling, which would indicate that a decline in prices is on the way.
Madani says the short-term uptick has been due to slightly lower mortgage rates, but the effect of that bump has already begun to fade.
“With Vancouver’s housing market still severely overvalued and tougher mortgage insurance rules introduced late last year now in full force, we doubt this uptick in home sales will last,” he wrote.
Toronto’s cooling market has been much more evident, with home sales down 20.3 per cent from May 2016 to last month. Detached home sales were down 26.3 per cent, while condo sales dipped by 6.4 per cent, according to TREB data.
Madani blames the dip in Toronto sales on tougher mortgage insurance rules, stricter provincial regulations on rent control and a new tax on foreign buyers.
On Monday, Madani advised against young people investing their money in a home, particularly since their equity could go up “in a puff of smoke” if home prices start falling. – CINEWS