You’ve been warned!

December 21, 2009

Finance Minister Jim Flaherty said in a interview released late on Sunday:

“The likely action we will take is to increase the size of the down payment from 5 per cent to a higher number, reduce the amortization — bring it down from 35 years to something less.”

Flaherty’s remarks echoed concerns voiced last week by Bank of Canada Governor Mark Carney about households’ ability to pay down debt. Read the report here>

It’s about market confidence

High housing prices Canada, especially the western cities in metro Vancouver, Calgary and Edmonton are due to consumers confidence. The mood can change overnight, demand disappears resulting in the housing market reversing the gains over the past 9 months. BNN discusses the CREA housing report with Sal Guatieri, senior economist, BMO Capital Markets, > watch video.

oct09-copy.jpg   If the support for home prices follows a trend line plotted on the pricing chart to the left, home prices could possibly drop 15% t0 20% to meet the trend line. The trigger that can change the market sentiment can be a single or combination of bad news.

When the average family income can only support around $280,000 mortgage, it is difficult to envisage how the high home prices can be sustained for a long period of time. A recent BNN video interview with Karl Denninger (founder, The Market Ticker) high-lighted the risk of home ownership at today’s lofty home prices as compared to renting. As a multiple of household income, Canadian home prices are way higher than a normal market can support.

You can view homes listed for sale in Richmond and Vancouver here.

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