The housing bubble fear in the Canadian housing market is
unfounded, says a Vancouver
Sun report. Home resale numbers in the month of October reveal that home
sales and home prices are doing fine. Though there has been a 30% fall in
monthly home resale volumes in early 2010, the average home price has held up well.
The stable home prices spell good news for the country’s
economic growth, which has lost its momentum. Tumbling home prices can
adversely affect economic growth, but the resilient in the market indicates
that the economy could be set for a stable period.
The Canadian housing market was considered overheated last
year but has cooled down this year, with average prices only about 4% higher
than last year. As of last month, home sales volumes have also been higher. One
reason for the housing market stability is due to the rock bottom interest
rates. But more importantly, the possibility of a housing bubble is low, considering
the conservative mortgage lending practices in Canada. High-risk borrowers
seldom get home loan approvals from mortgage lenders,
so the chances of large-scale mortgage defaults, as is the case in the United
States, are very low.
In early 2009, there was some cause for concern with some analysts
reporting home price overvaluations to the tune of 60%, but more careful and
accurate calculations revealed that prices were just about 10%-12% overvalued,
which indicates that the risk of a significant correction is very low.
