If you recently bought a home in Toronto or Vancouver solely to make a quick financial gain, you probably just made a mistake. We humans are averse to loss, and real estate in Canada’s two biggest cities has looked like easy money for several years now. But as behavioural economist Richard Thaler reminded me recently in the pages of his latest book, asset prices inevitably revert to their historical mean. “Recent momentum in prices in Toronto and Vancouver may increase the likelihood of a correction in house prices, which could affect vulnerable households,” Bank of Canada Governor Stephen Poloz said at a press conference in Ottawa on Dec. 15. City slickers, you’ve been warned.
What about the roughly 26 million people who live in the rest of Canada? Many of them already have been reminded that the real-estate market is subject to gravitational forces. The Teranet-National Bank index of house prices in the country’s 11 largest metropolitan regions rose 6.1% in November, yet only four cities—Toronto, Hamilton, Vancouver and Victoria—actually posted gains. Values in the other seven contracted. “The Canadian real-estate market already is in correction mode,” said Krishen Rangasamy, an economist at National Bank Financial in Montreal.
Continue reading at Canadian Business ...