With housing markets around the world plummeting, many Canadians have been wondering: could it happen here? The first hint of an answer arrived last week with a report showing that house prices in Canada fell in June for the first time in nearly a decade. Now the question has become: is this the beginning of the fall?

According to the Canadian Real Estate Association, the average house price in major Canadian markets dipped to $341,096, down 0.4 per cent from the year before, lead by declines in Calgary, Edmonton and Vancouver. Those numbers surprised economists, who were predicting slower growth, but not an outright decline. "We've seen some rapid run-ups in prices and all good things must come to an end," says Peter Hall, an economist with Export Development Canada. "But this was a surprise. We would not have called for a protracted price contraction."

Certainly, the dip is nothing compared to the carnage elsewhere. In April, home prices in 20 major U.S. cities tumbled 15.3 per cent from the year before. Home prices are also spiralling in France, the U.K. and Spain.

Still, after a decade of ballooning prices in Canada, even a small decline will have an impact. "It's all about psychology," says James Wong, a real estate agent in Richmond, B.C. When buyers see markets cool, "they start to worry that they're buying at the peak of the market." They may decide to wait and see if prices will go down further, which slows the pace of purchasing and allows real estate listings to start building up.

Meanwhile, sellers tend to hold out for a while because they're used to a rising market. Eventually, though, they lower their prices, rather than risk a further drop. Wong is seeing signs of that already, and says the official statistics often lag behind what's really happening.

From his vantage point on the front lines, Wong predicts Canada will continue to see a slight decline in prices over the next 18 months. Given how bad things have gotten in the rest of the world, many will be hoping that's as bad as it gets.

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