New editorial piece by Joe Castaldo of Canadian Business magazine due out on shelves April 15th, 2011 highlights how Canadians have become obsessed with home ownership, putting them and the industry, at risk.

Joe writes the following: “As prices have kept rising, Canadians have eagerly taken on mortgages, and household debt levels have soared to record levels. Some economists contend that we're perched on top of a bubble that's poised to burst or slowly deflate. Even the optimists say the best years for growth are behind us.

He then quotes notable economists: “David Rosenberg, chief economist at investment firm Gluskin Sheff, has been among the most bearish on Canadian housing, saying last year that prices could drop 20%. David Madani at Toronto research firm Capital Economics was even more pessimistic when he published a report in February predicting prices could fall 25% over the next few years. "It's psychology driving the market," he says. "We looked at income, supply, demographics, interest rates and took all of these things into account, and we still come up short in trying to explain why people have been so willing to pay higher and higher home prices relative to their income.""

“Eventually, prices and incomes have to converge. Right now, home prices stand at more than five times incomes, well above the historical norm of 3.5. In Madani's view, the only way to close the gap is for prices to fall. "These situations never have a happy ending," he says.”

He summarizes his editorial by writing: “Homeowners expecting the blockbuster growth rates of the 2000s will be disappointed, and those who bought at the peak of the market won't see much increase in value. The next few years could more closely resemble the 1990s, a sleepy period for real estate, to allow incomes to catch up to prices. Even in a flat housing market, consumer spending could weaken since homeowners will not feel as rich as they do when prices rise. "We're talking about lower rates of growth than we've had," says Soper at Royal LePage, "and you'll see it in all housing-related industries." That means slowdowns for agents, contractors, decorators and countless others who earn a living from the real estate economy.

Read the full article online at: http://www.canadianbusiness.com/managing/strategy/article.jsp?content=20110425_10021_10021

 

 

 

 

 

 

 

by Communications Team