Clear softening trend will lead to correction in Canadian home prices: CIBC

In a short report from CIBC economist Benjamin Tal says there are "clear signs that the Canadian housing market is softening." He points to a small decrease in the national sales to listings ratio and the smallest year-over-year price increases since October 2010as leading indicators of a softening real estate market.

"While we do not see house prices crashing, we do believe that house prices in Canada will level off in the near future and might start trending downward modestly. Further out, the most likely scenario is that the eventual increase in interest rates will lead to a decline in prices (probably in the magnitude of 10%-15%). But given the current balanced affordability position, the more significant adjustment will be in housing market fundamentals that are likely to catch up with prices in the coming years—paving the way for a healthier housing market later in the decade."

Indeed a softening in house prices in the next year or so is a necessary condition for such a soft-landing scenario. If the pace of house price increases accelerates during that period, then a year or two from now the likelihood of a violent price correction will be higher than it is now. "

Read the CIBC report here.

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Norm Fisher
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