Home Prices Expected to Drop to 40 per cent; Economist

The Toronto and Vancouver housing markets are on the verge of experiencing a “severe downturn” that could affect the country’s GDP and bring home prices down by about 40 per cent, a Capital 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, reported.

He hints there might be a little drop in Toronto housing prices prior to the end of the year, but that is enough to scare many homeowners out of the market.

“Once prices stop going up, the whole reason for speculating in the market disappears,” he said. “Sales have slumped. Usually, prices follow sales.”

Toronto and Vancouver housing markets have been zealous during recent years, but experts have been ringing bells about a possible change in market prices at the corner. For example, last week, the Organization for Economic Co-operation and Development encouraged Canada to do more about the risky Toronto and Vancouver housing markets. The notice came just after the International Monetary Fund encouraged Canada to defend against a possible correction.

Madani cautioned Capital Economics subscribers about the possible decline in a newsletter on Friday. He said hard rules are expected to restrict a recent recoil in Vancouver’s home prices, Toronto will surely go through a price correction following its current drop in sales.

“The housing market appears on the verge of a downturn and will negatively impact economic growth from the second quarter onwards,” Madani said. He cautioned that a recent increase in Vancouver home sales is a “head fake,” and that Toronto’s actual sales drop suggests housing prices “could decline outright before year end.”

“The economic outlook for this year and next appears to be worsening,” he said.