Property heading for a crash? 7 reasons why it's hard to tell: Don Pittis

In some ways it would be easier to plan ifwe really knew for sure whether Canadian home prices were about to fall off a cliff as so many people keep predicting.

Decisions on where the market will go next depend on too many factors to include here.

But as Canadians wait for tomorrow's latest data on house sales and pricing from the the Canadian Real Estate Association, here are some considerations people may use to gauge if or when house prices will tumble.

1. Interest rates

As usual, the biggest threat cited for home prices is how much we pay for the money weborrow.

In previous times a two percent increase from 8 to 10 percent would be painful but incremental. In the current market, asudden rise in interest rates, saytwo or three percentage points, would double the cost of interest payments, popping a decade-long bubble blown upby the Bank of Canada's artificially lowrates.

A more moderate path would give the housing market a chance to adjust. Even if, as expected, our central bank follows the U.S. to higher rates, a lot of uncertainty remains over how fast North American rates will rise.

2. Inflation

Historically, inflation rises and falls in a long cycleand whileafter the facteconomists will tell you why it happened, there are wide differences in opinion over where the cycle is heading next.

While inflation could lead to higher rates, some homeownersmay see Canadian property as a long-term inflation hedge.

3. Pent-up demand

Government policy, including a rule that new buyers must be able to handle interest rate increases, may mean a pent-up demand for housing, including by large numbers of new immigrants,will support prices if incomes begin to catch up.

Even if market conditions begin to change, it may meanhouse hunters schooled in a market of ever-rising prices will take time to adjustto thenew reality, leading to a softer landing.

4. Rate of construction

Home building in Canada's hottest markets remains strong. Toronto's skyline is stilla sea of cranes, and the ground is full of busy holes.

This week the Canada Mortgage and Housing Corp.revealed that housing starts slowed in March.

The ability of construction companies to keep pace with demand couldaffect the value of existing homes, with overbuilding leading tofalling in prices.

If instead builders overreactto thefear of falling prices and produce too few, thatcould have the opposite effect.

5. Investment properties

On my short Toronto block, two houses sit empty. In thebank of condos out the window by my desk, many balconies show little sign of life andthe lights don't go on at night.

Owning a condo in Vancouver or Toronto over the last decade has been a lucrative investmenteven without the bother of renting.

According to the CIBC that's changing.As those stunning returns disappear, as author and financial adviserHilliard MacBeth has said, peoplemay decide to invest their moneyelsewhere, accelerating a downturn.

6.Economic health

Potential home buyers may be less inclined to go out on a limb if they think the economy is going bad.

As with inflation, economies go through cycles. A moderate slowdown, however,could reduce the impact of inflation and thus the need to raise interest rates.

That said, strong economic growthcreates jobs and increases the wealth of Canadians, making them better able to cover housing costs.

7. Localdifferences

Partly due to U.S. President Donald Trump's sabre-rattling over Syria, oil prices seem to be on the way up.

An oil recovery could come to the rescue of home prices in oil-producing areas of Canada, languishingsince the 2014 oil price slump.

Interest rates will have an effect on everyone, but whether the price of your house will rise orfall will also dependon where you live or where you want to buy.

Housing prices are regional, and homes in areas that are in demand because the economy is strong or because they are close to servicesare more likely to hold their value.

Follow Don on Twitter @don_pittis