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Real Estate Watch: RBC downplays chance of housing market crash

RBC Economics is shrugging off the prospects of a crash in the Canadian housing market even as some market watchers warn overvalued home prices could spell disaster for homeowners.

RBC economist Robert Hogue argues in a report to clients on Wednesday that the risk of a crash that drags down nationwide sales more than 25 percent remains low. He suggests the Bank of Canada will raise interest rates gradually, beginning next year. Such a move would slowly cool the housing market, but insulate home prices from a rapid shift downward. He also says the housing market will find support from an improving Canadian economy, which is working its way through the fallout caused largely by the plunge in oil prices.

Hogue predicts the housing market is poised for one of its best years yet in 2015 thanks to very low interest rates, which are spurring demand for homebuying. He expects purchasing to be most intense in Ontario and British Columbia, where activity hovers at record or near-record levels in the Toronto and Vancouver areas.

However, Hogue also highlights a pair of risks that could derail his optimistic outlook. He says prolonged weakness in the Canadian economy and a subsequent rise in unemployment would meaningfully increase the risk of a housing crash.

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