Domus pointed out this article in the Globe and Mail. Former Bank of Canada governor David Dodge is adding his voice to the opinion that the federal government should act now to cool the Canadian housing market.
“These prices look pretty high by any conventional measure,” he said in an interview, citing measures such as the ratio of house prices to incomes and rents to house prices. “So, the likelihood of house prices falling a bit over the next few years is probably somewhat greater than that they would rise over the next few years.”
“Whether there’s a bubble or not you can only see after the fact,” he added. But it wouldn’t take a bubble bursting to cause consumers pain. If your house price goes down 10 per cent and you’ve borrowed 95 per cent of its value, all of a sudden you’d be in hot water, Mr. Dodge noted.
His comments come as Ottawa weighs action to take a bit of steam out of the housing market. While the government does not believe there is a bubble, it has been evaluating tools it could use to help ensure that more consumers don’t take on mortgages they won’t be able to afford when interest rates rise or if house prices fall.
The worst scenario would be if both of those things occur at once. Consumers would find themselves with higher monthly mortgage payments and less valuable homes.
While it’s virtually assured that interest rates will rise at some point, Mr. Dodge is of the view that it’s also realistic to assume house prices will fall. He notes that mortgage rates are likely to rise, which will put a damper on the market. Secondly, “we’re probably into a fairly long period of relatively slow income growth,” he said, and that too will curtail some housing activity.
Read the rest of Dodges comment in the full article here.