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Canada due for a 'severe' housing market correction

Canada may soon see a “severe” housing market correction, according to one expert.

Steve Eisman, fund manager at Neuberger Berman Group LLC, says Canada’s housing market is showing signs that the hot real estate scene could soon be cooling off if major changes are made.

“In Canada, there’s some pretty good evidence that the housing market is finally starting to turn over,” Eisman told Bloomberg. “Canada is not going to crash, but it hasn’t had a credit cycle in 25 years. I think they’re about to have one.”

Last week, housing sales figures showed that despite cooling measures put in place in Vancouver and Toronto, home prices remain quite high. The average price of a Vancouver home in September was up 17 per cent from the previous month, and up 4 per cent in Toronto.

National limits are already being put in place, as new rules were made official today that would implement a stress test on non-insured mortgages starting January 2018. The move is going to reduce the number of people who are able to apply for a mortgage, much like it did when rules around insured mortgage stress tests were put in place last year.

With fewer people qualifying for mortgages, inventory will increase, and home prices will start to fall — at least in theory.

READ MORE: Tougher mortgage rules extended to uninsured mortgages

RBC CEO Dave McKay voiced his support for the cooling measures, saying that it would be in everyone’s interests to see the market pull back, especially in Vancouver and Toronto.

“We’ve got to pull some of that back, because the big concern is when we start to move rates up, that cash flow [devoted to housing] gets sucked out of the Canadian economy, and it’s going to drag on growth,” he told The Globe and Mail.

McKay also said that if housing prices don’t start to cool off, it could also hurt the country’s ability to attract new talent and bolster economic growth. Pointing to the Amazon headquarters bids as an example, he said that our high housing prices make it challenging for workers to find affordable housing, forcing high-profile companies to look elsewhere for a new location.

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