Is Canada set for a housing correction?

An overwhelming majority of forecasters believe that the chances of a sharp fall in home prices in Canada have risen compared to three months ago, according to a new poll.

The Reuters poll, published last week, found that most of the forecasters polled said the plunge in the price of oil would be the most likely trigger of a housing correction.

However, a majority of analysts who responded to the poll said a decrease in house prices will likely be limited to the provinces in Western Canada that depend heavily on oil.

House prices are expected to rise 1.8 per cent in 2015 and one per cent in 2016, according to the poll. This is a sharp drop from the 5.2 per cent and two per cent growth predicted by respondents in November.

The poll's findings are in line with the Canadian Real Estate Association’s latest figures, which showed that national home sales activity decreased month-over month, resulting in a 3.1 per cent fall between December 2014 and January 2015.

While sales were down in around 60 per cent of the country’s local housing market, the decline was largely reflective of fewer sales in the Western provinces, including Alberta and Saskatchewan.

“As expected, consumer confident in the Prairies has declined and moved a number of potential homebuyers to the sidelines as a result,” said Beth Crosbie, president of CREA.

As far as a full-blown housing correction goes, it seems that only time will tell. CREA’s February 2015 figures will be released mid-March. In the meantime, the Bank of Canada will make its second interest rate announcement this Wednesday.

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