Are they allowed to print stuff like this in the Globe and Mail?
The current consensus is that Canada’s real estate market has achieved a “soft” landing and that prices will flat line but not decline substantially over the next several years. I disagree. The housing market in Canada is already in bubble territory. Average house prices have doubled in the last 10 years, while rents have risen by only about 30 per cent. The ratio of house prices to rent is now higher in Canada than in any other developed country.
An even more powerful indicator also points to a severe housing correction in Canada. Residential housing investment as a percentage of GDP was 6.48 per cent in 2009, down slightly from 6.76 per cent in 2008, after peaking at 7.13 per cent in 2007. The previous peaks were at 7.26 per cent in 1976 and 7.18 per cent in 1989 – and we know what happened to the housing market in Canada in the early 1980s and early 1990s. After residential housing investment as a percentage of GDP peaked in the previous two cycles, the housing market crashed within a few years.
I believe we are running out of time. By way of a comparison, this ratio peaked at about 6.1 per cent in the U.S. in the mid-2000s at the height of its housing bubble, and toward the end of the 1980s in Japan, when that country was nearing the end of its own property boom. Both countries experienced sharp declines in housing prices soon afterward. (I should mention that the ratio stands at 6.0 per cent in China at the end of 2010 – no wonder there is talk of a bubble in the Chinese housing market.)
Huh. I’m guessing this message wasn’t approved by the Canadian Real Estate Association.
