# Economist predicts 25% drop in house prices.



## Berubeland (Sep 6, 2009)

http://www.thestar.com/business/per...years?sms_ss=twitter&at_xt=4d500416079c9a29,0

The doom and gloom is already starting....


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## atrp2biz (Sep 22, 2010)

When I think of economists in the media, I immediately think of Jeff Rubin. I then immediately discount any forecast made.


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## logicfirst (Aug 19, 2009)

Well TD canada trust just raised mortage rates, and CHMC last month announcing new mortage rules. I wonder too whats gonna happen.


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## andrewf (Mar 1, 2010)

Just because some of them are kooks doesn't mean they don't have anything interesting to say. That said, economic forecasting is a mug's game.

To be fair, I don't think The Economist is predicting a 25% price correction. They merely say that properties are overvalued by 25%. That state can persist for a long time, or can be eroded by increases in income/etc. rather than decreases in price. It's probably just confirmation bias that I'd rather pick out these stories than the CREA stories about how real estate is honky dory.


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## Berubeland (Sep 6, 2009)

It's kind of refreshing to hear a dissenting opinion in the media on our real estate market here.


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## Jungle (Feb 17, 2010)

Please tell us something we don't already know. 

Garth Turner loved this report, he mentioned it like three days in a row now. You can tell by his writing, its given him momentum to preach the crash. You know, the one he's been mentioning and trying to sell in books for years. 

PS: A Google news search had some 67 news articles just on that report. I wonder how much money he made, be selling that to the media? 

The worlds best economist couldn't predict the stock market crash in 2008, so what chance does this guy have guessing a 25% figure?


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## dogcom (May 23, 2009)

I think this can happen but it will be coupled with another stock market crash and a crash in commodity prices. Or we need a interest rate shock to shake everyone out.

Otherwise I certainly don't see an oversupply where I live. I was thinking of selling but there is almost nothing to buy except townhouses or condo's.


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## Addy (Mar 12, 2010)

When was the last time we had a large correction in the real estate market? I recall in the (mid? late?) 80's it seems a lot of people around the neighbourhood I was living (with my boyfriend at the time just outside Barrie) who lost their homes, but I was too young to know exactly why and what happened.

What caused the last large correction?


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## kcowan (Jul 1, 2010)

Addy said:


> What caused the last large correction?


Prices were being bid up by immigrant buyers. Whole subdivisions in Markham were sold on the day they went on sale and 85% of the buyers were Chinese. The year was 1990.

Demand disappeared. There was no trigger event. The slump lasted until 1997.


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## I'm Howard (Oct 13, 2010)

The Pig is in the Python, the Boomers are starting to retire, when everyday is Saturday, they are retiring to areas where they can free up some cash from selling their downtown house to an area that offers unlimited recreation choices and has readily available Health Care.

The Georgian Triangle in Ontario, Shushwap in B.C.

Friends of ours go south for six months, rent their house to skiiers for three months, rental income totally pays for southern stay.


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## Addy (Mar 12, 2010)

kcowan said:


> Prices were being bid up by immigrant buyers. Whole subdivisions in Markham were sold on the day they went on sale and 85% of the buyers were Chinese. The year was 1990.
> 
> Demand disappeared. There was no trigger event. The slump lasted until 1997.


This is when Hong Kong was being taken back by China when the lease was up? I remember the same happening in Vancouver.

Anyone know what happened in the 80's to cause so many to lose their houses? Maybe Toronto was a different beast altogether, but I know in Barrie in the 80's there were some families I knew who walked away from their houses because the prices dropped so drastically.


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## HaroldCrump (Jun 10, 2009)

Statements like _we expect a correction of up to 25% during the next several years_ is sufficiently vague enough to absolve the forecaster of all responsibility (and credibility).
If you are going to forecast something, at least put a stake in the ground and forecast a specific number and a specific date.
Otherwise, it's worse than the local weather forecast and we know how accurate those are!


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## Four Pillars (Apr 5, 2009)

HaroldCrump said:


> Statements like _we expect a correction of up to 25% during the next several years_ is sufficiently vague enough to absolve the forecaster of all responsibility (and credibility).
> If you are going to forecast something, at least put a stake in the ground and forecast a specific number and a specific date.
> Otherwise, it's worse than the local weather forecast and we know how accurate those are!


For the record - I expect a real estate price change (up or down) of up to 40% in the next 2 decades.

I'll probably be right for a long time.


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## NotMe (Jan 10, 2011)

Four Pillars said:


> For the record - I expect a real estate price change (up or down) of up to 40% in the next 2 decades.
> 
> I'll probably be right for a long time.


Garth Turner, is that you?


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## Square Root (Jan 30, 2010)

atrp2biz said:


> When I think of economists in the media, I immediately think of Jeff Rubin. I then immediately discount any forecast made.


Speaking of Jeff Rubin. Back in the late 80's (I think) he forecasted real estate prices to drop (by25% I think). Realtors went crazy but he was right- they did drop by about that amount. I don't think he has done as well since though.


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## HaroldCrump (Jun 10, 2009)

Square Root said:


> I don't think he has done as well since though.


That's the thing with forecasting - _someone_, somewhere, is always right.
The question is whether the same person is right every time, or even most of the time.


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## K-133 (Apr 30, 2010)

HaroldCrump said:


> That's the thing with forecasting - _someone_, somewhere, is always right.
> The question is whether the same person is right every time, or even most of the time.


A million monkeys, on a million typewriters...


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## loggedout (Dec 30, 2009)

I believe the economy in Ontario is about to go down the toilet and not recover for decades, so I wouldn't be surprised if this prediction, if not worse, were true for this province.


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## Addy (Mar 12, 2010)

loggedout said:


> I believe the economy in Ontario is about to go down the toilet and not recover for decades, so I wouldn't be surprised if this prediction, if not worse, were true for this province.


Due to? Partially because manufacturing will take another huge dump due to the high dollar.... but there must be more to it?


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## loggedout (Dec 30, 2009)

Addy said:


> Due to? Partially because manufacturing will take another huge dump due to the high dollar.... but there must be more to it?


The continued loss of high paying jobs in the manufacturing sector, coupled with an expensive, and poorly thought out green energy plan, an aging population straining OHIP, and rising interest rates.


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## andrewf (Mar 1, 2010)

There's a lot more to the Ontario economy than just manufacturing. And while our government is occasionally inept, thankfully so are most of the others in the world, so it poses no particular disadvantage.


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## loggedout (Dec 30, 2009)

andrewf said:


> There's a lot more to the Ontario economy than just manufacturing. And while our government is occasionally inept, thankfully so are most of the others in the world, so it poses no particular disadvantage.


It was a pillar of the province's wealth, south of the mining rich regions, and provided a good income for a great share of the population, who are unlikely to find new jobs that pay anywhere near the same. These problems have been brewing for a while but through cheap cash, rising home equity, and growth in the public sector, it's been mitigated, or rather its impact has been pushed off to the future. 

I hope my prediction is not true but I feel everything is going to come down, and the crash is going to be bad, really bad.


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## Jon_Snow (May 20, 2009)

Listings are exploding in Vancouver right now... one of the signs that Real Estate doomsayer Garth Turner says to watch for just before prices begin to fall.

Hey, I get a kick out of Turner's blog... so sue me.


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## Square Root (Jan 30, 2010)

loggedout said:


> It was a pillar of the province's wealth, south of the mining rich regions, and provided a good income for a great share of the population, who are unlikely to find new jobs that pay anywhere near the same. These problems have been brewing for a while but through cheap cash, rising home equity, and growth in the public sector, it's been mitigated, or rather its impact has been pushed off to the future.
> 
> I hope my prediction is not true but I feel everything is going to come down, and the crash is going to be bad, really bad.


ok but there are other high paying jobs, such as high tech and financial services. If you really believed your prediction you would be moving to my province ALBERTA.


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## loggedout (Dec 30, 2009)

Square Root said:


> ok but there are other high paying jobs, such as high tech and financial services. If you really believed your prediction you would be moving to my province ALBERTA.


what high tech? RIM? around Waterloo...it's barely a blip.

i don't think the ordinary joe laid off from a well paying manufacturing job is cut out for "high tech" or well paying positions in the financial services industry. a knowledge economy isn't inclusive and because knowledge doesn't get "scarce", the more you make use of it and typically consists of a 1 shot transfer to the customer, i don't believe it is sustainable. i think the demise of this province is inevitable. i am probably being overly pessimistic, but i do not see good times ahead.

this is the key piece in the original article's that i think is most important:

"As in the U.S., financial innovation and very low interest rates have allowed Canadian consumers to take on more debt, and house prices are high relative to income"


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## dogcom (May 23, 2009)

Jon Snow listings may be exploding in your part of Vancouver but not in West Richmond where I live. In fact there hasn't been a new listing in Richmond West since Feb. 1st and there is very little at that. I have been looking in the Steveston area and there are only about 3 or 4 houses at the most for me to look at other then a townhouse or a condo.


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## Jon_Snow (May 20, 2009)

Yesterday, listings in Vancouver were 300 and sales under 100... Richmond is a different beast for sure, but its the exception, not the rule in Vancity. Although the "ethnic factor" seems a big factor in West Vancouver as well.


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## kcowan (Jul 1, 2010)

BNN survey on house prices:
Will house prices continue to rise at 7% a year like they have for the past 10?
No 67% Yes 33%

So polyannas seem to be in the minority!


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## Berubeland (Sep 6, 2009)

Jon_Snow said:


> Listings are exploding in Vancouver right now... one of the signs that Real Estate doomsayer Garth Turner says to watch for just before prices begin to fall.
> 
> Hey, I get a kick out of Turner's blog... so sue me.


I do too although I'm not half as much of a bear as he is ! 

I think you can make make money in real estate but not if you're a fool  

Still in a descending market it's hard to catch a falling knife


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## jamesbe (May 8, 2010)

kcowan said:


> BNN survey on house prices:
> Will house prices continue to rise at 7% a year like they have for the past 10?
> No 67% Yes 33%
> 
> So polyannas seem to be in the minority!


http://www.bnn.ca/News/2011/2/8/2011-housing-sales-drop-seen-less-severe.aspx


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## kcowan (Jul 1, 2010)

jamesbe said:


> http://www.bnn.ca/News/2011/2/8/2011-housing-sales-drop-seen-less-severe.aspx


CREA's job is to hype the market. Have you seen how their previous forecasts have held up?


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## Jungle (Feb 17, 2010)

Yea, adjusted like 4 times last year.


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## kubatron (Jan 17, 2011)

Nice response to this garbage brought out by Capital Economics..

..from CMHC..

http://www.cmhc-schl.gc.ca/en/corp/nero/loader.cfm?csModule=security/getfile&PageID=250282


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## K-133 (Apr 30, 2010)

kubatron said:


> nice response to this garbage brought out by capital economics..
> 
> ..from cmhc..
> 
> http://www.cmhc-schl.gc.ca/en/corp/nero/loader.cfm?csmodule=security/getfile&pageid=250282


pwned.


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## Jon_Snow (May 20, 2009)

It will be fascinating to watch this play out... I think I'm covered either way. If this crash/correction occurs (I'm leaning this way) our cash savings will go alot further when my wife and I move into a bigger place. If things remain much as they are, we will continue to own an 800 sq. ft Vancouver condo than is worth 320k... which boggles the mind, but definitely bolsters the net worth statement.

I can't envision any scenario in which prices won't slide when interest rates normalize. With signs the North Amercian economy is heating up a bit faster than forecasted, higher rates are just around the corner.

Garth Turner might just be right this time.... CARNAGE.


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## meddlesomemarmots (Feb 16, 2011)

Jon_Snow said:


> It will be fascinating to watch this play out... I think I'm covered either way. If this crash/correction occurs (I'm leaning this way) our cash savings will go alot further when my wife and I move into a bigger place. If things remain much as they are, we will continue to own an 800 sq. ft Vancouver condo than is worth 320k... which boggles the mind, but definitely bolsters the net worth statement.
> 
> I can't envision any scenario in which prices won't slide when interest rates normalize. With signs the North Amercian economy is heating up a bit faster than forecasted, higher rates are just around the corner.
> 
> Garth Turner might just be right this time.... CARNAGE.


With some of the sales going on in Richmond, BC over the last couple of weeks I worry about when a big slow down is going to occur - seems like the mortgage tightening won't be slowing hot markets down at all.


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## sags (May 15, 2010)

The CMHC rebuttal states that the average home equity within their mortgage portfolios is45%.

This statement doesn't make sense, given that no one has a CMHC loan, unless they lack the 20% down payment.

Unless they are using pretty lofty "appraisal" assessments, it doesn't add up.


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## Berubeland (Sep 6, 2009)

As I have said before, the big five banks insure all their mortgages not just the high ratio ones with CMHC. This way they are entirely protected.


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## Bupp (Nov 13, 2009)

sags said:


> The CMHC rebuttal states that the average home equity within their mortgage portfolios is45%.
> 
> This statement doesn't make sense, given that no one has a CMHC loan, unless they lack the 20% down payment.
> 
> Unless they are using pretty lofty "appraisal" assessments, it doesn't add up.


What you are forgetting is that unless someone has refinanced and paid out their cmhc insured mortgage, the mortgage remains cmhc insured even if it is transferred from one bank to another.

Therefore, there are a lot of cmhc mortgages from 5, 10, 15, 20 years ago which have very low loan to value ratios which average out with the new mortgages that are 80%-95% LTV.

It makes perfect sense that the average mortgage that is insured is 45% ltv


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## Square Root (Jan 30, 2010)

Berubeland said:


> As I have said before, the big five banks insure all their mortgages not just the high ratio ones with CMHC. This way they are entirely protected.


You have said this before but it is not true. I checked the TD annual report for 2010 and CMHC guaranteed mortgages represent $48biliion of total $71billion on their balance sheet. TD often pays for the guarantee to manage it's capital requirements, not its credit risk as it views these low ratio mature mortgages as very very low risk.


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## kubatron (Jan 17, 2011)

@ the person who'se mind is boggled at an 800 sq ft condo being worth $320k.

I have a client who bought an 800 square foot condo in Canada's best and biggest city (Toronto). Right at the prime prime area of Yorkville. Paid $475K in 2006, pre-construction.

Appraised this week at $725K.


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## K-133 (Apr 30, 2010)

kubatron said:


> @ the person who'se mind is boggled at an 800 sq ft condo being worth $320k.
> 
> I have a client who bought an 800 square foot condo in Canada's best and biggest city (Toronto). Right at the prime prime area of Yorkville. Paid $475K in 2006, pre-construction.
> 
> Appraised this week at $725K.


Holy crap! 

Even after a 25% drop, he'll still have money spilling out of his pockets.


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## kubatron (Jan 17, 2011)

get over the 25% drop. this garbage prediction won't materialize.

and, he's selling at the peak anyways.


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## K-133 (Apr 30, 2010)

kubatron said:


> get over the 25% drop. this garbage prediction won't materialize.
> 
> and, he's selling at the peak anyways.


Are you referring to me?


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## HaroldCrump (Jun 10, 2009)

kubatron said:


> get over the 25% drop. this garbage prediction won't materialize.


It is amazing how the RE fetish has the govt. by the balls.
They continue to refuse to raise interest rates, even with surging inflation, RE bubble and other crazy things going on.


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## kubatron (Jan 17, 2011)

I think we'll see a drop in prices, but not by 25%, at least not in Toronto. Who knows, if it happens, it happens. I just don't think the Capital Economics report had much validity to it, is all.


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## I'm Howard (Oct 13, 2010)

Harold, look at the major sources of Inlation, HST is one of them.

Brilliant, with the $CDN almost 2% stronger than the $U.S let's raise rates and really screw the manafacturing segment of the economy.

Rates will stay low until the US raise theirs, and that ain't happening any time soon, Bernanke is running the Canadian Fiscal and Monetary Policy, we just think we are.

I am in the States, reality is starting to set in, the next year will see interesting changes as they struggle to gain control of an imploding infrastructure.


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## HaroldCrump (Jun 10, 2009)

I'm Howard said:


> Harold, look at the major sources of Inlation, HST is one of them.


Absolutely...you are speaking my language now 


> Brilliant, with the $CDN almost 2% stronger than the $U.S let's raise rates and really screw the manafacturing segment of the economy.
> 
> Rates will stay low until the US raise theirs, and that ain't happening any time soon


Right, so that's just going to keep making the inflation worse.
During the next year or so, consumers and retailers will adjust their mindset, prices and spending to the HST.
So the general price level (the RPI, vs. the CPI or the WPI) will settle at a higher level due to the HST.
But things won't stop at that.
Inflation will keep going up, esp. essentials like groceries, gas, etc.
Home prices will continue running amuck, putting more money into the pockets of the RE industry and its derivatives such as mortgage brokers, RE agents, insurers, etc.
Which in turn will worsen inflation even further.
Essentially this is the process of destroying fixed incomes, retirements and national currencies.


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## Cal (Jun 17, 2009)

kubatron said:


> I think we'll see a drop in prices, but not by 25%, at least not in Toronto. Who knows, if it happens, it happens. I just don't think the Capital Economics report had much validity to it, is all.


Hey, I hope your right and the RE market doesn't drop that much. The article did call for that drop over the next several years...so who knows what may happen over that time span.


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## kubatron (Jan 17, 2011)

K-133 said:


> Are you referring to me?


yes. i responded _directly_ above your post.


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## cosmica76 (Jan 31, 2011)

In the previous month I assumed this progression of housing prices in Canada. On the first face of it´s a possible condition of real estate market, but the main power of this prediction is an increase in the demand. My PR team prepared a seasonal report here: http://ellidavis.com/toronto-real-estate-news/2011/02/housing-starts-up-in-january 

I´m really looking forward to the following prediction of house prices and of course RE market.


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