QUOTE (Millions @ Aug 15 2010, 12:06 AM) ..Some Real Estate sites are claiming that the Canadian market (especially the big cities) will drop at least 30% over the next year - 3 years. ..It HAS happened in quite a few markets already, say Edmonton, AB or Canmore, AB or Windsor, ON .. from the peak in 2007 to late 2009 .. but certainly in Alberta we`ve seen prices stabilize and rise since early 2010 due to better economy and less heated/inflated prices. So Alberta certainly is back to a normal growth again. That`s why we are buying in AB again after we sold a ton of stuff in 2007 and did not buy anything in 2008 or 2009 in AB.
Example: an entry level home in Edmonton that was perhaps around $300,000 in 2005/2006 was well over $420,000 in late 2007/ early 2008 at the peak .. and if you deduct 30% off its peak price it is now $300,000`s again in 2010 ... will it drop ANOTHER 30% to around $200,000 ?? Hardly !!
Why would prices drop:
a) higher interest rates
b) less mortgage availability
c) poor economy
d) ex-migration / poor demand
e) pre-fab is cheaper than built onsite / cheaper US imports
Combine all 5 in one market and yes, prices will drop quite a bit.
is this possible ? of course it is. Is it likely: NO .. although GTA might have the odd downwards price movement as will some Vancouver condos as will all newly constructed stuff.
I see a 30% drop only if
a) interest rates for a 5 year mortgage, best rates, are north of 6.5% (and thus, advertises rack rates are 8%), and
b) CMHC requires 15% down on any new mortgage, and
c) world wide 2nd recession incl. weak oil/gas/copper/nickel/potash/uranium/coal/electricity (i.e. energy/resource) demand
d) major change in Canada`s in-migration policies
e) ability to buy pre-built condos or homes cheaper than woodframe/concrete newly built due to very weak US dollar
Is this 5-fold combo possible: sure it is. Is it likely: no.
re a: interest rates: they will be LOW for a lot longer than expected
re b: CMHC underwriting changes: this is unlikely .. although 10% down would be a welcome move to discourage speculative buys and entice people to move into too large a home. People with low incomes shouldn`t expect to own a home until some savings are acquired. 5% down clearly has a sub-prime mortgage smell to it and is essentially tax subsidy .. but even with 5% down CMHC`s default rate is low today .. but will rise sharply as interest rates rise !
re c: 2nd recession: a possibility given government debt levels .. although I`d expect a more sluggish weak growth .. with prices more or less where they are today for 2-3 years .. nothing too dramatic up (no, oil not yet at $140 .. but also not at $40) nor down .. more wobling along the bottom of the barrel
re: d: change in in-migration: unlikely too .. although a focus less on family integration (read: older parents and ailing grandparents with no desire to become Canadianized, learn English and contribute to CPP/EI) and more on skills/education/young people would certainly help here !!
re e: pre-fab/cheap US imports: a trend we are watching for apartment buildings certainly. We toured a building on Friday in Calgary .. $220/ft for an old ugly concrete box. You can buy pre-built for $100/ft plus land + connection costs (concrete slab, water, gas, permits, ..) .. so watch this trend as even a $400,000 basic 2000 sq ft house in Calgary is well above this pre-fab concept. So that will keep prices capped .. especially if the US $ drops a lot further and this pre-fab home can be imported from Alabama or Georgia or Florida or Lousiana .. i.e. those low wage states a 2 day truck drive away. Thus: why buy a $400,000 basic home in Calgary if I can buy a lot for $125,000 and have a pre-fab home installed for another 200K .. this might put some downwards pressure on new home prices or at least gives alternatives to entry level homes or new condos/apartment buildings !!
