House prices forecast to fall 20% over 5 years

by |
Pacific Investment Management Co. forecasts Canadian home prices falling as much as 20 per cent in the next five years, removing the boost from household spending that contributed to faster than- expected growth last quarter, reports the Ottawa Citizen.

“Canadian housing is overvalued,” said Ed Devlin, the London-based head of Pimco’s Canadian portfolio. “I would expect to see it happening at the end of this year, we’re going to start to see housing roll over.”

The housing decline, which could be cancelled out or reduced to 10 per cent when accounting for inflation, will cause a pullback in consumer spending, capping economic growth this year in Canada at around two per cent, Devlin said.

“It’s not a collapse, it’s a correction. We think the Canadian economy can handle it,” said Devlin. “It’s going to be a headwind to consumption as people don’t have the same kind of wealth effect and are more anxious about their house than they have been in the past. They’ll consume less.”

Such a correction would likely shrink margins for brokers but also allow more clients to enter the market.

The forecast furthers sentiments expressed in Thursday's CMHC second quarter housing outlook report, which expects 2014 and 2015 to experience a soft landing.
  • mark on 2014-05-22 10:17:39 AM

    Why don't they just say vancouver and toronto market will correct.

  • sudhir sharma on 2014-05-22 10:27:11 AM

    We should consider the strong demographics, employment, immigration and inflation which are favourable to a growing housing market.

  • Angela Wong-Liao - Invis Inc on 2014-05-22 10:38:59 AM

    Real estate market correction has been predicted for at least 5 years, but the real estate market remaining strong because of low interest rates and immigrations. In view that Canada is tightening their immigration guideline, especially for investors, I believe there is a big impact to Canadian real estate, especially Toronto and Vancouver, which are very much influenced by Asian immigrants. China is tightening up in house cleaning of bribes and corrupt government officials recently and there are a number of real estates were purchased by these dirty money, I agree with Pacific Investments' forecasts, 10 to 20% correction is possible.

  • Ferdinand Gatt on 2014-05-22 10:52:11 AM

    Home prices in London On have been stable with 2-4% per year increases generally, for the last 5 years. I do not see as much as a 20% correction in this area.

Broker news forum is the place for positive industry interaction and welcomes your professional and informed opinion.

Name (required)
Comment (required)
By submitting, I agree to the Terms & Conditions