If the Canadian real estate market continues to cool, house prices could see substantial declines next year and could fall by as much as 25 per cent over the long term, according to an economics report released Wednesday.
Though some economists have suggested that a tepid slowdown so far in the market suggests it is headed for a "soft landing," Capital Economics economist David Madani said he continues to believe that a more drastic drop is on its way.
"We think a housing correction over the longer-term is inevitable and still stand by our earlier view of house prices declining by 25 per cent," he said in the report.
The Capital Economics report acknowledges that house prices haven't started to fall en masse, but dismisses theories that Canada's housing market is enjoying a soft landing.
"There is always a stand-off period at the end of a housing bubble, when prospective buyers refuse to meet the prices of sellers, who refuse to drop to the asking price," said Madani.
The report warns that any stagnation in prices can be misinterpreted as a successful soft landing.
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