The CIBC economist also forecast that the Canadian economy will have a lackluster 2012, although will avoid recession.
Tal said the average price of a house has risen 28% from a cyclical low in January 2009. But that average has been largely skewed by strong activity in relatively expensive markets of Vancouver and Toronto, he said, whereas the overall national market is more multi-dimensional.
“But even a multi-dimensional market can overshoot,” said Tal. “And the likelihood is that prices in the Canadian market and its sub-segments are higher than what can be explained by factors such as income growth, rent, and household formation.”
He fell short of calling the pending price drops a sign of a bubble in the Canadian market, however.
Short of a huge macro shock, the risk is small that in the near term a large-scale forced selling materializes and triggers a precipitous plunge in house prices,” said Tal.
As for the national economy, CIBC predicted a 3% growth in the global economy next year, well below the 5% pre-recession rate.
“As an open economy, Canada can’t help but feel the disappointment of a barely half-speed world,” said Avery Shenfield, chief economist at CIBC.
Shenfield said Canada’s economy will grow by 2% over the next two years, with the jobless rate remaining about the same as now.
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