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Are Canadian house prices too high?

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I am amazed by peoples fascination with real estate price trends, but it is for good reason being one of our largest purchases. We have also witnessed global real estate price destruction over the past five years yet remain unscathed so far in Canada. Is this about to change?

The volume of warnings of an impending downturn in Canadian housing prices continues to increase despite continued rising prices.

At TriDelta we are now more cautious of real estate values given the significant rise in Canadian consumer debt and global economic woes, but this has been offset by very low interest rates fueling demand.

The Teranet-National Bank house price index showed a national housing price decline of 0.25% in October although the year to date advance remains positive at 3.84%. Regional variances are more pronounced; the Toronto area price decline was 0.6% in October 2012, but remains up almost 7% year to date. Vancouver on the other hand eked out a positive monthly growth of 0.1%, but is down year to date. See http://www.housepriceindex.ca/Default.aspx

I attended a conference this week and listened to two top economists, Paul Ashworth, Chief US Economist, Capital Economics and Avery Shenfeld, Chief Economist, CIBC World Markets. Interestingly they agreed on a dire outlook for Canadian real estate, but differed in the likely extent of the pullback. Paul discussed why his team believed that Canada will suffer a shocking 25% decline, which he described as their “conservative estimate”. Avery predicts a modest correction, but failed to commit to the extent.

Professor Robert Shiller is very in tune with global real estate trends remains pessimistic on our housing market. He along with other experts continue to ring the warning bells and we should take note. Here is another recent article well worth reading:

http://www.businessinsider.com/robert-shiller-canadian-housing-bubble-2012-9

While there are always a number of opinions on the direction of real estate, it now appears that residential real estate prices might be hitting an inflection point. For those planning on having their real estate fund their retirement, now may be the right time to downsize or even to sell and rent.

Article compiled by Anton Tucker, VP TriDelta Financial

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