Don't Expect Housing Prices to Drop Dramatically in 2011

Claims that Canada’s housing market is ready to pop are exaggerated, say economists at BMO Nesbitt Burns.

Instead, they say the market can more realistically be labelled “moderately overvalued” based upon a comparison of house prices with personal income. They also note that mortgage servicing costs for “typical” homebuyers are running near the long-term norm of 34%.

“Barring a sharp spike in mortgage rates or a relapse into recession, a substantial price correction is unlikely to occur,” economists Earl Sweet and Sal Guatieri wrote in their research report.

They noted, however, that Canadians would have a hard time dealing with a sudden 3% hike in mortgage rates. That would weaken affordability “substantially” and, in turn, drive down demand and home prices.

Click here to read the BMO Nesbitt Burns research report.