Categorized | Housing Bubble

Canada Housing Bubble – Part 1

Real estate in Canada in recent years has seen some attractive appreciation despite the 2008 crash of us real-estate price. This trend of higher home prices has continued, especially for western provinces of Canada. Although, higher home price has been seen in other parts of the world, most notably; China, Australia and the UK. Although, these latter real estate markets have started to decline, and with some patience we will eventually see a similar decline in Canada. Canada is not bullet proof, especially in a global economy which we live in.

How far up did Canadian Real-Estate market go?

The Canadian Real Estate Association, issued new figures on Monday showing that Canadian home sales rose 2.5 per cent in March, and the average Canadian home sold for $369,677 last month. For a more indepth look at Canadian home price evaluation see here. That means the average Canadian home price increased 130% since 2000. On the south side of the border, the average home price at its peak increased to approximately 65% from year 2000. The Canadian housing market price average actually increased double the amount when we compare it to the United States.

Who is responsible for this increase?

I would argue, Freddie, Fannie in the US and Canadian Government-owned CMHC. Also, other local programs like Access Condo from SHDM. CMHC alone, insured $541 billion in mortgages as of Sept. 30, an amount equal to 31 percent of Canada’s annual gross domestic output, as home prices climb and construction expands. According to Bloomberg, In 2006, when U.S. home prices peaked, their equivalent ratio was third of their economy.
Other factors contributing to the price increase

China and other wealthy Asians have also increased the price evaluations of real-estate in Canada, as shown on my earlier post Purchasing Canadian Real estate by Helicopter. However, this investment is far more based on speculation than on fundamentals. If an Asian slowdown were to happen, an important factor contributing to Canadian real-estate would also be unfilled.

Result of the Home Price Increase in Canada

According to the globe and mail, Canadians now have a debt-income level ratio of 151%, similar to one the United Stated has before their crash. The artificial low borrowing cost and easy credit through federal and provincial programs much incentives this boom in the Canadian real estate market, and now Canadian are at an all-time high in terms of debt.

Will the housing bubble burst in Canada? Please post your comments below.


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