The term is all over the news right now: Canadian Housing Bubble.
All because some nerds at the CCPA issued a report saying the six largest Canadian markets are in bubble territory.
Even the trust-worthy local Vancouver Sun is obscured by dark clouds and using headlines like “Vancouver real-estate ‘bubble’ an accident waiting to happen“. The Globe and Mail has pretty pictures charting different scenarios of home price collapse and there’s more coverage at Canadian Business Online.
The steep rise in house prices in so many cities points toward an “accident waiting to happen,” Macdonald said.
In the past 30 years Canada’s housing market has undergone three bubbles. Bubbles occur when housing prices increase more rapidly than inflation, household incomes and economic growth, according to the report.
Each of Canada’s previous bubbles was punctured by only a one per cent rise in interest rates over two years, Macdonald warned.
It would take only a one per cent to 1.25 per cent mortgage rate increase by Canada’s big banks to cause a housing crash similar to the one the U.S. is grappling with, he added.
Vancouver saw housing bubbles in 1981 and 1994 and another one burst in Toronto in 1989. In Canada’s other major markets — Calgary, Edmonton, Ottawa, and Montreal — prices remained stable from 1980 to 2001 at around $150,000 to $220,000 in today’s dollars.
“The concern today is all six major markets, not just Vancouver and Toronto, are out of that comfort zone,” Macdonald said. “All six major markets now have an average price of over $300,000.”
Judging by the recent signal to noise shift in the comments section on this blog, some people are getting a bit edgy about all this negativity. Even the CMHC is predicting falling sales and dropping prices for pete’s sake!
But take heart! There’s good news – a conflicting report from the C.D. Howe institute says no problem, there’s little likelihood of a national Canadian housing bubble.
..and if there isn’t a US style national housing bubble, then there can’t be a housing bubble here in Vancouver right?
Also! August is over and I hope you got all that yard work done because there are some houses out there to buy. We’re breaking records for low sales this month of new units in Vancouver West as well as units in Port Coquitlam and Maple Ridge.