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May 27, 2010

Everyone can breath big sigh of relief, the Canada Real Estate Association says a U.S. style housing market collapse is not likely in Canada. This is in contrast to recent reports from some Canadian banks citing an over-valuation of Canadian houses.

According to CREA, Canadian home prices will remain stable for the foreseeable future and that banks predicting otherwise are wrong.

“The relationship between average price and income has recently been cited as portending a U.S.-style correction in Canadian home prices,” said Gregory Klump, chief economist with CREA. “However, such warnings ignore the longer-term relationship between prices and income, and disregard typical Canadian housing market cycle dynamics.”

Just this week a report by CIBC World Markets Inc said that on average Canadian home prices are now around 14 per cent over their fair value.

Keeping in mind CREA’s generally optimistic view on real estate, their report explains home prices tend to rise in cycles, characterized by periods of sharp growth and periods of stability. Canada home prices are now simply headed for a period of stability.

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