House Prices To Remain Flat Over 10 Years
According to predictions made by TD Bank, as outlined in the original article included below, house prices in Canada are estimated to remain constant (and flat as a pancake) for the next 10 years. How is this possible? Well, the market IS expected to see some increases, but these will only be as small as a couple % per year, max, which doesn’t leave much room for profit yields when you take inflation into account. So, yes, the market will, despite minor improvements, sustain its essentially flat state throughout the duration of the next decade. Here’s a snippet of the original article with a link for those who wish to learn more.
OTTAWA – Canada’s real estate bonanza of the past decade has come to end and the long-term trend as one of the most profitable places to invest is also not encouraging, a new research paper from the TD Bank argues.
The “special report” from one of Canada’s largest banks makes the case that gains in housing prices have been exceptionally strong over the last 10 years, even when accounting for a sharp drop during the 2008-09 recession. But now is the time for a bit of a payback.
The report does not predict a collapse in house prices as some analysts have suggested. In fact, it sees prices rebounding after a few years of a correction to as high as eight per cent.
However, the longer term trend is for home price gains to average about two per cent over the next 10 years — flat once inflation is taken into account, says TD chief economist Craig Alexander.
“I do not think we have a housing bubble in Canada,” said Alexander. “We have had abnormal strength in the market during a period of low interest rates and when rates go up over the next three years, you will get a cooling and weaker prices, but not a permanent shock and not a sharp correction.”
The bank said tighter rules for borrowers and lenders are only part of the reason to expect prices to moderate. Other contributing factors include the aging population, modest growth in both the population and the economy and, eventually, higher interest rates.
The bank thinks the market could correct by as much as eight per cent over the next three years, but Alexander said it is possible that prices won’t fall as much as that.
Some forecasters, including Capital Economists, have predicted a bigger correction is in the offing, arguing that houses in Canada may be overpriced by as much as 25 per cent.
But Alexander says that exaggerates the problem, believing the overvaluation is closer to 10 per cent.
The problem with the housing collapse scenario, says Alexander, is that typically a sharp price correction needs a trigger in terms of a steep increase in interest rates or unemployment, both of which appear unlikely at this point…
READ MORE: http://money.ca.msn.com/savings-debt/yourmoney/house-prices-to-remain-flat-over-10-years-td
Original Article By Julian Beltrame, The Canadian Press, thecanadianpress.com
image courtesy of rob_rob2001
