Article content

By Mario Toneguzzi

Canada’s housing market is a bubble ready to burst as valuations have “lost touch with fundamentals” and household debt is at a record high, says a report by Capital Economics.

We apologize, but this video has failed to load.

tap here to see other videos from our team. Try refreshing your browser, or Housing prices could fall 25%, research firm warns Back to video

The independent research firm’s report says it fears that house prices could fall by as much as 25% over the next three years.

“House prices have been growing rapidly for nearly a decade now and it has reached the point where housing is so overvalued relative to incomes that a downward correction seems unavoidable,” says Capital Economics.

“Relative to disposable income per capita, our calculations suggest that housing is around 25% overvalued, which is approaching the level of excess that the U.S. market reached at its peak in 2006.”

The report says the downturn in the housing sector will severely constrain economic growth over the next couple of years as consumption expands at a more “muted” pace and housing investment “shrinks.”