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Canada – Heading for a Housing Crisis?

18 March 2010

Is Canada Headed for a Housing Crisis?

Simone Baribeau, US Editor of Money Supply at the Financial Times of London, took a swipe at Bank of Canada Governor Mark Carney recently when she questioned whether or not Canadian monetary policy has really softened the economic blow of the recession or if we just haven’t hit our own U.S.-style housing crisis.

She hypothesized that, while Canada is the only G7 country to avoid bailing out its banks that, with continued rising housing prices we may be in for our own housing crisis. According to Baribeau, “if prices fall (as they did in the U.S. before the crisis) Canadians stand to face the kind of pain that Americans and Europeans have been facing over the past year, just with a time lag”. That’s a scary thought.

According to a new research article released by the International Monetary Fund, Canadian real estate is extremely pricey – we’re talking real estate bubble territory expensive. While that’s not news to those living in Toronto or Vancouver, it is significant in terms of context. The article looked at home prices in different countries and showed that in Canadian home prices-to-rents, we are the second-most expensive country. Only Sweden placed higher than us.

With banks taking shelter in the idea that low interest rates will allow Canadian home buyers to carry larger mortgages, it’s absurd to assume that rates will stay low unless the economy stalls. That would bring a whole other set of problems.

Are we in a real estate bubble? Will we suffer the same real estate crisis as other countries? As with the whole interest rate situation, it’ll be interesting to see what happens later this summer when rates rise. It seems that all we can do is watch and wait and hope that Carney is right.

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