David Madani, an economist with Capital Economics, says that low mortgage rates could lead to a correction of 30 per cent in Vancouver
as the labour market softens and mortgage rates rise due to higher bond yields.
In a client note Tuesday Madani wrote: “Lower mortgage rates have enabled Canada’s key housing markets to defy gravity for the past few years.
"But with prices rising dangerously high relative to household incomes, there is the potential for a large correction down the road.”
He notes that in the short term mortgage rates could be lower but the longer-term outlook is for a reversal in rates, boosting the chance of a housing correction.
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The economist who predicted a yet-to-happen price crash of 25 per cent for Canada’s housing markets back in 2011 now says he expects the correction to be even larger.