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RBC recently came out with a report saying that the condo market in Toronto is not in a bubble, but Capital Economics says otherwise. They just came out with a report of their own asserting that the Canadian housing market, which includes Toronto, is definitely in a bubble.
According to economist David Madani of Capital Economics, Canada’s housing market is currently experiencing what is termed a “soft landing”, and is most certainly in the process of bursting.
Mr. Madani expects housing prices in Canada to crash 25% over the next few years. He originally asserted the same numbers back in June 2011, and has reaffirmed it again after the report by Royal Bank, home of the country’s largest mortgage lender, where RBC’s senior economist Robert Hogue, said that supply and demand are aligned in Toronto, and dismissed the notion of a market bubble contrary to everyones predictions.
Furthermore, Mr. Madani also notes that recent changes in mortgage lending rules will effect the market through first-time home buyers, who make up 50% of new home sales, and 25% of resales. “The housing bubble in Vancouver already appears to be deflating, with only Toronto defying the inevitable. Accordingly, we expect substantial declines in house prices over the next year or two.”
Madani reports housing prices typically respond to market changes with a lag of 5 to 9 months; pointing out home sales have already seen declines – down 4% in the last two months.
