Capital Economics Ltd. said house prices have risen too high in Canada, and a correction is inevitable.
“Housing valuations have lost touch with fundamentals and household debt is at a record high,” said economists at the research firm in a report issued Wednesday. “Our fear is that with the housing bubble now close to bursting and commodity prices retreating, Canada will go from leader to laggard.”
Similar predictions have been made already about Canada’s market by the group in February, when economist David Madani predicted a 25% to 35% drop.
The latest Capital Economics report is in response to cautions given by Governor Mark Carney that real estate prices will begin to moderate. The Certified General Accountants Association of Canada also reported recently that household debt is now $1.5 trillion, which averages out to about $176,461 owed per two-child household.
Troubling for many new homebuyers is that many are being priced out of the market. By 2010, the average price for a two-storey home in Canada was $314,000, about five times the average disposable income per person of $58,347.
The Capital Economics report noted that the ratio is usually closer to the average prices being 3.5 times the average disposable income.
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