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Canadian Home Prices Expected to Drop by 10%?

Last week, CIBC stated that Canadian homes would drop 5 – 10 percent within the next two years.  The main factor causing this decrease in the value of Canadian homes is rising mortgage rates.  It does make sense that increasing mortgage rates will slow down housing demand, but is a decrease in home prices by 5 – 10 percent really logical? 

The Canadian economy is booming, with consumer retail spending on a severe rise.  If the economy is picking up and households want to purchase a new home, will an increase in mortgage rates really deter home purchases?  By increasing mortgage rates from a low rate to a long-term average rate, it will only deter speculators.  Yes, the demand for housing will slow down and the booming Canadian real estate market will cool, but a decrease by 10% is drastically overrated.  Canadians will and should continue to purchase a home if they can afford to,  and the Canadian real estate market will not decrease by 10%.  Buying a home today in Canada is still a wise investment, and this article should not deter the decision to buy a home.

Source: http://www.reuters.com/article/idUSN2515712520100525

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