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Real Estate

Housing: Bubble or no bubble? Add to ...

As Canada's housing market softens, the question for many homeowners is how much prices might decline.

The Conference Board of Canada waded into the debate Wednesday, saying there will not be a "free fall" in the market but rather a pause in what has been, in recent years, rapid price increases.

The comments come on the same day the Bank of Canada raised its key lending rate for the third time in a row, though it cautioned that further increases aren't set in stone. The central bank's record low interest rates over the past year have been a main reason for the recent boom in the country's housing market.

Canada's real-estate market has now lost its lustre, but it won't see the steep price declines occurring in the U.S., today's report said.

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"The fundamentals of our economy remain sound. Contrary to the United States, this country's labour market has rebounded from last year's recession. Interest rates, while rising slowly, remain very low," said Mario Lefebvre, director of the Centre for Municipal Studies.

"This market will pause, but it will not nosedive - in contrast to the housing market south of the border, which is still battling a large inventory overhang that should keep it from rebounding promptly even if employment were to rise swiftly."



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Demand will continue to soften in the next few months, thanks to a cooling economy, shaky consumer confidence and a new harmonized sales tax in Ontario and British Columbia.

But though some markets might soften, the weakness won't come close to the U.S., where specific laws such as mortgage deductibility for tax purposes fuelled a bubble.

Housing starts are expected to ease in about half of Canada's markets in the medium term, and the pace of resale housing activity is already slowing.

After a decade-long boom, the market has to return to more normal levels of activity. "This is what's happening right now," Mr. Lefebvre said, adding that 24 of 28 markets are "showing a balanced stance in their existing home markets, a sign that the recent large declines in sales have more to do with a return to more normal levels of activity than the start of a steep downturn."

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