Canada is not in a housing bubble; but is that cause for concern?

The housing market in Canada is one that walks a fine line. It slows down too much, and people start panicking. It picks up speed, as it has recently, and people start panicking. The current reason for this latter panic is because mortgage interest rates are so low, more and more people are starting to take on mortgages. This then, has the potential to lead to the dreaded “bubble” – and even worse, the bubble burst – when people gobble up new homes at low rates, only to later find that they can’t afford them. And the panic in Canada right now is that this burst is going to happen on a multi-million scale.
Jim Flaherty, Canada’s Finance Minister, said on Wednesday that Canada is not in a housing bubble, even with the low interest rates on mortgages. But, he followed up that statement by saying that it may be a good thing, because only then will Canadians really start taking their debt, and their current or future mortgages, seriously.
The song that Canadians need to lower their debt is one that Flaherty has been singing well before mortgage rates dropped to historical lows. Flaherty has been clear for months that Canadians need to start really looking at it and trying to reduce it, not take on more.This is because, he says, even though rates are low today, and will likely remain low for the next couple of years, they will eventually go higher. And when they do many of the homeowners that are now taking on mortgages will find that they can’t afford them – whether that’s in 2 years, 5 years, or 7 years. That’s when, he says, homeowners and Canada’s economy will really pay the price.
But for those Canadians carrying the debt and wanting to take on more, Flaherty’s offer isn’t a very tempting one.
It’s this lack of motivation, Flaherty says, that is the problem and that until a housing bubble actually occurs, Canadians won’t start taking their debt seriously; and they’ll continue to look at the low interest rate as an indicator that now is the perfect time to take on a mortgage – with little or no thought to their current debt level.