Edmonton Real Estate Heading for a Housing Correction: Experts

Posted by Gurpreet Ghatehora on Saturday, January 16th, 2016 at 10:40pm.

The Edmonton real estate market could experience a housing correction in 2016, experts say. The recent news doesn’t come as a surprise, given the past few years, but it could change how Edmonton’s real estate market works in the New Year. Here are some commonly asked questions about housing corrections, and some answers as to why it may happen in Edmonton.

Q: What is a Housing Correction?

A housing correction, also called a market correction or (impolitely) a crash, is when real estate markets see a sharp drop in sales across the board. For Edmonton specifically, that would mean a drop in housing prices and in square-footage prices for commercial properties. Those with mortgages could see their homes devalued, while those looking for homes could see lower prices, but this is often coupled with higher interest rates as more “risky” buyers can take advantage of the changing market.

Q: How do Corrections Happen?

Market corrections most commonly happen after a “housing bubble,” or a period where a booming economy leads to homes being overvalued and sold for more than they’re “worth.” Of course, a house’s price is simply whatever one is willing to pay, but a buildup of higher pricing can eventually lead to the “bubble,” as it were, to burst. When this happens, we can see a correction. In Edmonton, the market correction, if it indeed happens, would a be result of the many economic factors that have been happening over recent years.

Q: Who is Badly Affected by Housing Corrections?

Many people can be negatively affected by a correction. Everyone will initially have a drop in their home’s value, which is universal and can be somewhat unevenly spread. The worst of it usually hits higher-priced homes, where the percentage drop equals the most amount of money, which can be terrible for older owners who need to move from the home where they raised their families. Of course, people working in the housing market, and those who invested in it, are also negatively affected.

Q: Can Some People Benefit from Corrections?

Actually, yes. They can be a good thing for first-time buyers and young families. For first-time buyers, a slash in pricing can help them amass a decent down payment rather than relying on even more borrowed money to enter the housing market. For young families living in smaller homes who are looking to upgrade, this can work out well too. Their home may drop in price, but so will other homes, so they can upgrade for potentially less money.

Q: Will the Correction be Drastic if it Happens?

Probably not. We could see drops in prices of under 5%, probably around 3.5%, which is not a drastic correction compared to some in the past. And this is only a speculation by industry professionals, not a set-in-stone eventuality. It depends largely on 2016 market forces that can be hard to predict with absolute certainty.

The housing correction may happen, but if it does, it isn’t entirely all doom and gloom. Knowing a bit more about it, however, can help you stay ahead of the curve.

 

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