Home prices are falling in Ottawa. Is this a serious problem? Depends on whether it is a long-term trend or not. A decrease in demand has a negative effect on GDP and the economy. The less confidence people have in the housing market and the economy, the less they are willing to buy. The opposite is true as well. An increase in demand may lead to an inflationary trend.
Falling home prices mean slow economic growth and reduced level of spending. Consumers are less likely to remortgage and borrow. The problem is that the home they have bought is worth less than the purchase price. More homeowners default on their payments, and financial institutions lose money. This leads to an overall reduction in wealth and probably recession. If it happens in the midst of recession, it will deepen it further.
Infographic courtesy of Homes for Sale Ottawa
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