05/30/2013 02:42 EDT

Canadian House Prices Set To Fall 5 Per Cent, Survey Predicts

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The U.S. housing market is bouncing back strongly after years of stagnation, but the problems in Canada’s housing market have only just begun, according to a survey of housing market forecasters.

Of 21 forecasters polled by Reuters, about half raised concerns that house prices in Canada are at risk of a “sharp fall,” the news service reported.

Though the forecasters offered varying predictions on where the market is headed, the survey’s median result calls for a 5-per-cent drop in house prices in the coming years.

That would spare Canada the sort of widespread economic destruction that the U.S. saw in the wake of its housing market collapse (which none of the forecasters are prescribing for Canada), but it’s still a more negative forecast than the “soft landing” many of Canada’s bank economists are calling for.

House prices in Canada have nearly doubled in the past decade, but rises have flatlined over the past year, slowing to about the rate of inflation, and they are outright declining in Vancouver and in the Toronto condo market.

Even with recent sharp rises in U.S. house prices, Canadian prices remain about 62 per cent above the levels seen in the states. Home sales across Canada have fallen about three per cent in the past year.

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Most market observers fall into two camps: The bulls, who say Canada is in for a “soft landing,” and will see house prices continue to rise, albeit more modestly than in recent years; and the bears, who say Canada’s housing market has become detached from economic fundamentals and is in for a major correction.

The Economist magazine is in the bear camp, predicting a “wrenching” housing bust for Canada, and noting house prices are 32 per cent above their long-term trend, when compared to incomes.

But bulls like CIBC economist Benjamin Tal argue that housing affordability is in good shape because of the very low interest rates mortgage holders have been enjoying in recent years.

Market observers worry what a protracted slowdown could mean for Canada’s economy. Analyst Ben Rabidoux has been warning that Canada has become too reliant on construction jobs, and a slowdown will have a significant impact on employment.

The Canadian Association of Accredited Mortgage Professionals recently predicted the slowdown would cost 150,000 jobs in industries related to construction and real estate. It predicts home sales will fall 25 to 30 per cent by 2015.

CAAMP has been critical of Finance Minister Jim Flaherty’s moves to tighten mortgage restrictions (Canada has seen four rounds of mortgage regulation tightening in the past five years), arguing the most recent changes tipped the housing market into contraction.

But Flaherty and other observers say the moves helped prevent a bubble from forming in Canada’s housing market, and the softening in prices and sales is healthy in the long term.