The Current

Canadians should be worried about real estate slowdown, says expert

Canada's overheated market finally shows signs of cooling. But is it a blip, a soft landing, or the bursting of a bubble? Should Canadian homeowners be concerned their properties will continue to decrease in value?
Home sales in the Greater Toronto Area were down 37.3 per cent in June from the year prior. But is this a long-term trend? (Graeme Roy/The Canadian Press)

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Canada's housing market may be finally showing signs of cooling.

According to Canadian Real Estate Association statistics, average national home prices have fallen 10 per cent since the heights of April this year.

Change is attributed in part to the Bank of Canada raising interest rates for the first time in years, as well as provincial legislation in Ontario and B.C. aimed at slowing skyrocketing prices in Toronto and Vancouver.

But is this dip in price a blip, a soft landing, or the bursting of a bubble?

Hilliard MacBeth, financial adviser and author of When the bubble bursts: Surviving the Canadian Real Estate Crash, is concerned what the slowing market means for Canadian homeowners. 

"I think it's a big problem, " MacBeth tells Piya Chattopadhyay on The Current.

"Over the last five years the private sector debt in Canada has grown 20 per cent, and it's the leading pace of increasing credit in developed countries."

Edmonton-based housing analyst Hilliard MacBeth believes a housing price correction is due in Canada. (CBC)

"Once [housing] prices start to correct, as they have in Toronto, these issues with debt become much more important."

MacBeth warns this pricing dip may be the calm before the storm. He sees a comparison between some Canadian markets and the United States before their 2008 housing collapse.

"The Canadian bubble is actually worse than the U.S.'s was prior to the correction. In the metric of household debt, we're quite a bit higher than the U.S. was. The length and the amount of the price increase in house prices are also much more extended than the U.S. was prior to the crash."

"In Toronto, where the biggest bubble exists, we're looking at [house prices] six or seven times household incomes.  And prior to this bubble, the high end of that range was three times. That would imply a 50 per cent correction to get back to where things are normal and reasonable again."

I'm worried about the household finances of the nation. People are devoting huge chunks of their cash flow to their mortgage.- Rob Carrick, columnist at the Globe and Mail

For MacBeth, current housing prices are unsustainable.

"I think we have to get back to the situation where people can actually afford the houses that they're in with a reasonable amount of debt."

On July 17, the Bank of Canada hiked its benchmark interest rate to 0.75% from 0.5%, its first increase in nearly seven years. Interest rates are likely to increase in the coming years, raising alarm for those with costly mortgages. (Ryan Remiorz/Canadian Press)

Brian Torry, a general manager of Bosley Real Estate in Torontothinks the current slump is likely nothing more than a brief blip, pointing to the recovery of Vancouver's market as an example of real estate's dependability.

"They had a little correction. It was about seven months, and then it turned itself back around. I believe their numbers now show prices about where they were before their correction less than a year ago."

For Toronto in particular, Torry says the cost of rentals indicates a healthy market.

"Toronto is incredibly tight right now. It's very expensive. Rents are going up quite a bit. It seems like a fairly solid investment." 

Rob Carrick, a personal finance columnist at the Globe and Mail, agrees with Torry that the current slump doesn't necessarily signal a correction, but believes it should give us pause.

"I think house prices going down doesn't mean that we're going to see a rash of defaults. But I'm worried about the household finances of the nation. People are devoting huge chunks of their cash flow to their mortgage. How are people saving?"

Listen to the full conversation at the top of this post. 

This segment was produced by The Current's Kristin Nelson, Karin Marley and Samria Mohyeddin.