Posted by: Don Bayer, CFP
Reporter Tony Wong wrote an article that’s posted on the YourHome.ca section of the Toronto Star website entitled “House prices overvalued by 14 per cent in Canada: CIBC” .He comments on two reports from the CIBC and TD and quotes Chief Economist Benjamin Tal from CIBC extensively.
I have been following Benjamin Tal’s discussion around the housing market for the past 10 years. He is one of the few economists that writes on the subject consistently with passion. Unfortunately, like most economists who try to predict the future, he has been wrong more than he has been right. He is not alone, as just last year RBC suggested just the exact opposite of this article. Look, when mortgage rates are 1.75%, every family with a household income of $90,000.00 can afford the $444,000.00 home that CMHC suggests is the average in Toronto. After 10 years of growth in the real estate market across much of Canada, there will be some price pullback. I, for one, am looking forward to a normalized market. It is interesting to note that even when the banks are stating that a 10% to 15% pullback is in order, they continue to reap the rewards and lend aggressively in Canada to buy market share.
Ask yourself this question, why would the CIBC or TD, or any of the banks for that matter, buy mortgages (i.e., by aggressively going after market share) in a real estate market where home prices are decreasing?