Canada home prices may not fall because of stubborn sellers, say some experts

Waiting on Canada’s real estate market to collapse before buying in? Well, guess what? According to a recent article in the Financial Post, stubborn sellers may prevent that from happening.

As the Post notes, Urbanation Inc. says preliminary condo results for 2012’s fourth quarter show prices are down 0.8 per cent in Toronto year-over-year while Canada-wide home prices were also down 0.8 per cent in November from a year ago. But, so far, that’s about it.

“The one thing missing from the market, for all those people looking for a crash, is a catalyst or an event that will force people to reduce their asking prices,” the article reads.

What sort of event are we talking about? Job losses or a spike in interest rates would do it, but neither of those things appears to be on the horizon.

Yes, sales activity in Canada is down from 2011, but does that mean prices will follow?

“…what if sellers simply refuse to lower their price, something that has happened so far in the markets where sales are drying up very fast. What’s next?” the Financial Post piece asks.

Benjamin Tal, deputy chief economist with CIBC World Markets, tells the national paper: “I think stagnation is a good word for what will happen, it’s what we saw in the market from 1992 to 1997.”

In the US, the event that set off their crash was a sub-prime market – people had to sell because they were delinquent. But Don Lawby, chief executive of Century 21 Canada, doesn’t see any desperation from Canadian sellers.

“The economy continues to be okay, people have jobs, interest rates are low,” Lawby tells the Post.

“Historically, anytime when prices dropped it was tied to high unemployment and interest rates. It’s not the case today, people are not forced to sell, they are staying with their price,” he said.

Of course, not everyone agrees that the stagnation scenario will be the one that plays out. Some argue that a trigger isn’t necessarily needed to bring on a crash. Still, experts like Gregory Klump, a chief economist with the Canadian Real Estate Association, say history supports the notion that some sort of major event is needed to create a housing market collapse.

“In the late 1980s, it was a case of a spike in interest rates, in late 2008 and early 2009 it was a massive layoff,” Klump tells the Post. “You need a massive and extended economic shock and none of that is in the forecast.”

An interesting thought and one worth taking a closer look at. Be sure to read the Financial Post article in its entirety here.

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