Canadian Housing Market Bubble - Economists Weigh In

The Canadian housing market has seen continual growth over the years, especially in and surrounding urban centres. This ongoing growth in the value of Canadian properties has led some to rejoice, while others, including well known economists, seem to be all over the map with respect to whether Canada is in fact in danger of a housing bubble.

At the beginning of this year Torsten Slok, chief international economist from Deutsche Bank released a report surmising that Canada’s housing prices are 63% over value and that Canada is in danger of serious financial problems: http://business.financialpost.com/business-insider/deutsche-bank-reveals-7-reasons-why-canada-is-in-serious-trouble-starting-with-a-63-overvalued-housing-market.He chalked up his findings to a few distinct issues:

1.    Canadian household debt to income still seeing historical highs

2.    The mortgage credit market has seen a slow down

3.    Canadian household debt exploding across the board – credit cards, loans and mortgages

4.    Construction of multi-level apartments and condos have seen all-time highs while construction of homes has leveled out over the past decade

5.    Urban centres like Toronto have seen slowing growth in the past couple of years

Following this article in the Financial Post, in April of 2015 financial adviser and author Hillard MacBeth commented in a CBC interview on an analysis released by Economist Magazine
http://www.economist.com/news/finance-and-economics/21648624-housing-markets-across-globe-both-underperform-and-overwhelm-property-puzzles “that tracked Canada's housing prices as being overvalued by 35 per cent”http://www.cbc.ca/news/business/overvalued-home-prices-could-put-new-owners-at-risk-1.3042790.

Some economists have cited record Canadian household debts as the reason that the Canadian housing market could be inflated, while others cite puffed up ultra-low borrowing rates.

When we say opinions on this topic are all over the map – we mean it.

In the same month that the Economist Magazine analysis was released, so was an opinion by Bank of Canada Governor Stephen Poloz in the Globe and Mail:  “We don’t believe we’re in a bubble…Canada’s long-running boom in the housing market hasn’t been underpinned by the kind of rampant speculative buying that is the hallmark of an asset bubble.” http://www.theglobeandmail.com/report-on-business/economy/economic-strengths-to-overtake-oil-gloom-poloz-says/article24149175/

Canada’s Finance Minister Joe Oliver was quoted this past May in a closed media session on the topic of further planned CMHC changes, saying “We do not see the need for major changes at this time, we will continue to monitor the market and make adjustments, if needed, although none are being actively considered right now.” This seems to signal that the Canadian government is satisfied with the performance of the Canadian housing market.

http://www.bnn.ca/News/2015/5/20/There-is-no-housing-bubble-in-Canada-Finance-Minister-Joe-Oliver-.aspx

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