Is the Canadian housing market a bubble?

If you asked me this question last year, I would have said yes but not it’s not as bad as Ireland or the U.S. However, the Canadian economy and Canadian banks have weathered the storm brilliantly. So most people think the answer is now no.

Nevertheless, house prices are high and rising and this has David Rosenberg agreeing with me. To the question Is the Canadian housing market a bubble? he says:

It sure looks that way.

At a time when personal income is down around 1% over the past year, we have seen nationwide average home prices soar over 20% and last month hit a record high; as did home sales. In real terms, home price appreciation is back to where it was in 1989. Of course, back then, interest rates were far higher but then again, the economy was in the late stages of a phenomenal multi-year economic expansion, not making a transition from deep recession to nascent recovery.

We are in no position to make a claim that there is a high degree of speculation in residential real estate as there was during the “flipping” mania of the late 1980s. Be that as it may, housing has become a very crowded asset class in Canada, as measured by the homeownership rate, which at last count was estimated at 68.4% which is not only a full percentage point higher than the current U.S. ratio but is the highest it has been on this side of the border in nearly four decades.

While the Canadian economy is recovering, overall growth is still barely above zero as manufacturers grappled with excess inventories, a strong currency and a soft domestic demand picture south of the border. Employment conditions have improved, but are hardly that healthy, as we saw in the latest jobs report for November, where wages and the workweek were both down despite a constructive headline number (half of which were in the education sector, an inherently difficult area for statisticians to adequately seasonally adjust).

Much more at the link below.

Special Report — Is the Canadian Housing Market in a Bubble? – David Rosenberg, Gluskin Sheff

  1. hrvoje says

    Hi Ed, love your site.
    I’m from Australia, what’s your take on Australian housing market. We never had correction in housing prices and they keep on going up and up. When is the bubble gonna pop? When Chinese slow down our mineral’s imports?

    1. Edward Harrison says

      Funny you should mention that because I had thought of referencing Australia in the article. My view generally is that Australia and Canada both are two countries that have seen unsustainable house price gains without a serious bust. This may give market participants a false sense of security. It definitely has in Canada. But, Canada and Australia have the best chance of easing out of over-valuation rather than experiencing bust. I know Steve Keen says something quite different.

      1. hrvoje says

        Hi Edward,
        big fan of Steve (just started reading his book Debunking Economics), but Steve has been saying that for the past 10 years, yet my house has tripled in price since. He is certainly true about the long run. But as Keynes said “in the long run we’re all dead”. So the question is when. Keen/Minsky talk about the tipping point under which level of debt is unsustainable, where is that point?

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