Fitch: Forget 25%; prices are 26% overvalued

This week, Fitch Ratings reiterated that claim, immediately putting the backs up of investors and homebuyers alike, especially those in B.C. and Quebec -- that's where the 26 per cent figure comes from. The analysis is nothing new and once again prefaced on a slumping number of home sales and an economy struggling to rev its engines.

Still, the 10 per cent drop will be a relatively slow process for most markets, says Fitch, pegging it at five years.

Nonetheless that dip in prices could have a punishing effect on many homeowners and investors grappliing with record levels of debt and bracing to the inevitable interest rate hike.

“With a high level of employment and individual net worth tied to the value of the housing stock," warns Fitch, "a housing downturn could have serious consequences for the overall economy.”

The word of caution comes on the heels of new indications from Finance Minister Jim Flaherty that the federal government would if necessary move to further tighten mortgage rules in order to slow the real estate market. Still, that intervention, says Flaherty, isn't immediately called for.

That may jive with Fitch's reading of the market, suggesting a devastating real estate collapse would really only come about as the result of a significant, almost catastrophic, shock to the economy.

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