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‘The worst scenario’: What if Canada’s real estate bubble bursts?

‘The worst scenario’: What if Canada’s real estate bubble bursts?

A repeat of Toronto’s 1989 crash could have devastating effects on the entire economy

Builders work on a new home in North Vancouver in 2016. The average home price in Canada climbed by 10 per cent to $559,317 in April, the Canadian Real Estate Association says.

Builders work on a new home in North Vancouver in 2016. The average home price in Canada climbed by 10 per cent to $559,317 in April, the Canadian Real Estate Association says. (Canadian Press)

It’s the question lingering behind every headline. It’s whispered among homeowners, would-be buyers and sellers, economists and policy-makers. What actually happens if Canadian real estate prices crash?

On the one hand, a crash might be good for some Canadians already priced out of the market. And even a dramatic 40 per cent drop in prices would set homeowners in markets like Toronto or Vancouver back, what, two or three years?

But there are broader concerns for the market and the economy itself that could prove devastating.

Home prices are notoriously off the charts. Everyone from the governor of the Bank of Canada to the chatty guy in your local cafe has said, repeatedly, that this increase in prices is not sustainable. But what that means, precisely, is vague.

The latest numbers from the Canadian Real Estate Association show the average home price in Canada climbed by 10 per cent to $559,317 in April. Notably, the number of sales in Toronto’s red-hot market fell by almost seven per cent but prices continued to rise.

No one is saying the end is nigh. Most are still banking on that ambiguous “soft landing” policy-makers have talked about for years. But, for the sake of argument and for a better understanding of the risks, let’s talk about what a real crash would look like.

CANADA-HOUSING/

A ‘Sold’ sign is stands at an empty lot in a new subdivision in Calgary in 2015. Canadian home prices are off the charts, and a lot of people say they are not sustainable. But what that means is vague. (Reuters)

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