Booming markets won’t collapse under their own weight – economist

Those worried that the high home prices in Canada’s hottest markets will collapse under their own weight can breathe a sigh of relief – at least according to one economist.

Central1 chief economist Helmut Pastrick said that the spiking prices in markets like Toronto and Vancouver aren’t enough, in and of themselves, to spark a housing collapse.

“No housing recession in Canada or elsewhere has been caused by high prices alone,” Pastrick told News 1130.

A catastrophic housing collapse would require a broader economic recession, Pastrick said. He cited Calgary, where the oil=price collapse has driven down property values.

“In Calgary, people are beginning to leave – migrate out – and housing has simply followed,” he said. “So housing sales are down on the order of 30% so far this year and housing prices continue to decline, albeit at a slower rate.”

Pastrick also nixed the idea that house flipping was unnaturally inflating the markets in Vancouver and Toronto.

“There are few signs that speculation is driving either market,” he told News 1130. “House process in Vancouver and Toronto are not overvalued from a long-term perspective, or for a long-term investor.”

Pastrick did warn, however, that the booming markets would take the hardest fall if a full-scale recession did hit Canada.

“Usually markets with the fastest price growth prior to the recession undergo the steepest price declines during the recession,” he said. “The most vulnerable homeowners during a housing recession are low-equity buyers, who are often more recent entrants.”
 

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