Star investigation warns that home prices could drop by 25 per cent—we’re starting to miss 2010’s optimism

Star investigation warns that home prices could drop by 25 per cent—we’re starting to miss 2010’s optimism

Image: George Kelly 

Not that we want to be accused of looking for clouds behind every silver lining (and yes, just today CIBC reported that Toronto’s economy is leading the country), but we’re still a little concerned about the Toronto Star’s weekend story on home prices. Economists interviewed by the Star agree that next year is going to be a bad one for home prices—it’s just a question of how bad.

From the Star:

Analysts agree the cycle of exceptional appreciation will be broken in 2012, but disagree about the severity of the downturn—some believe house prices will flatline, others forecast a drop of up to 25 per cent by 2013.

If that forecast comes true, it will put an end to a spectacular run-up that saw prices more than double in cities such as Toronto since 1996…

A situation in which prices flatline is for some analysts the best-case scenario. Other bank economists and non-bank analysts have said prices will drop by anywhere from 10 per cent to 25 per cent over the next two years.

A drop of 10 per cent, while not severe, could still wipe out the equity for some buyers who have saved to put the minimum down on their home.

And those 25-per-cent drops on home values could be downright disastrous for homeowners—though it’s possible that a flat or declining real estate market could give renters a break for a while, and a decline might let some people snap up deals in some cases (See? Silver linings!). It might also force politicians who’ve been touting our banks’ sage and sober lending practices to eat a little crow, which is always fun to see. We like the final words given to Paul Swartz, a Toronto realtor: “I always tell my clients that it’s important to remember that the good times don’t last forever.”

Housing market hot streak coming to an end [Toronto Star]