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Dramatic housing crash possible in Metro Vancouver: analyst

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Summary

A local portfolio manager says it looks like China's massive credit bubble is getting ready to burst

If that happens, experts say it will lead to a slowdown in buying activity in Metro Vancouver

VANCOUVER (NEWS 1130) –┬áThere are plenty of questions about whether or not BC’s new 15 per cent foreign buyers’ tax will actually cool down Metro Vancouver’s crazy housing market, but one analyst is warning real estate prices could soon come crashing down all on their own.

Portfolio manager Naveen Gopal with Pacifica Partners Capital Management says China’s massive $32 trillion (CAD) credit bubble is showing signs it’s getting ready to burst, which would lead to dramatic effects on the local housing market.

“If we do see a contraction in China which causes more money to flow out of the Vancouver market, it could really turn any housing correction into a housing crash. At its worst it could create a situation where a local homebuyer is essentially stuck with negative equity in their home for upwards of a decade or longer,” he tells NEWS 1130.

Gopal says a credit contraction in China would not only mean a slowdown in buying activity in Metro Vancouver but it could lead to a lot of forced selling by foreign investors. He adds it would also trigger the next global recession.

“This is on the order of the US subprime bubble. In terms of when, that’s the big question. We really don’t know the answer to that because there is such a lack of transparency in the economic reporting out of China and it’s difficult to trust what is out there.”

Gopal adds there are signs the credit bubble is starting to weaken but, given that China is not a free market, the government could keep pouring resources into the economy for another couple of years.

“And once it contracts, and it seems like it will at some point, we really won’t know the full impact until afterwards.”