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The real estate sector in Canada is in a bubble that could burst at any time according to the IMF, Deutsch Bank, the Bank of Canada and The Economist.
The Economist has determined that Canada’s housing market is
- the most overvalued in the world in terms of rent prices (+89%), and
- the third most overvalued in terms of incomes (+35%),
70% of mortgage lenders in Canada have expressed “concerns” that the housing sector is in a bubble that could burst at any time.
Deutsch Bank estimates the housing market is 67% overvalued and readily offers 7 reasons why Canada is in trouble.
Even hedge funds are starting to find ways to short the housing market in anticipation of an upcoming collapse.
Even by the Bank of Canada’s own estimate, the housing market is overvalued by as much as 30%. It is hard for housing to become more affordable when prices are rising in double digits in a year.
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Related Articles from the munKNEE Vault:
1. Canada’s Housing Bubble Is A Sight To Behold – A Terrible Sight! Here’s Why
Canada’s housing bubble has been a sight to behold. Home prices only dipped 8% when the US housing market crashed. Then it re-soared. Now, across the country, home prices are 26% higher than they were at the already crazy peak in 2008. In Toronto, they’re 42% higher! There is a major drawback Canada’s housing bubble beyond the fact that it will eventually crash with terrible consequences. Read More
2. Implosion In Canada’s Housing Market Is Inevitable! Here’s Why
The Canadian housing market is deep into bubble territory. We all know that bubbles can go on for longer than most people think but with the crash in oil prices and people fully believing their own hype, the market is set up for a big fall from grace. Canadian households are deep into debt and make American households look like penny pinchers. Here are five charts showing that the implosion in Canada’s housing market is inevitable. Read More »
3. Housing Bubble Threatens Financial Stability of Canada – Here’s Why
Over the last 14 years, house prices in Canada have increased by 150%, twice as fast as in the U.S…[and] far outpacing household incomes. Any increase in interest rates would prick the bubble, and its implosion would trigger all sorts of mayhem to the point that the Canadian government has expressed concerned that such an event would be a significant risk to the “stability of the financial system”. Read More »
4. Canada’s Housing World’s Most OverValued – Where Does Your Country Rank?
Canada’s housing market is the most expensive in the world – 60% overvalued by historical standards – and one simple reason explains it. Read More »
5. Is a Real Estate Bust Coming to Canada – Finally?
The Canadian housing market is headed for a significant bust, in my view. It’s going to be a repeat of the 2008 mortgage bubble deflation. Only it’s happening to the north. People will lose a lot of money but those who understand and are properly positioned may gain fortunes. Read More »
6. Canada Could Be Developing a Minsky Moment In Real Estate – Here’s Why
According to the Case-Shiller 10-City index Canadian house prices only appreciated by 84% between 1990 and 2006 compared to 181% in the U.S.. However, as U.S. prices plunged by almost 33% between the peak in April 2006 and the trough in May 2009, the chart below shows that Canadian home prices continued to rise, driven by very low interest rates and relatively benign unemployment. By July 2012, they had reached similar heights as U.S. prices before their decline and fall. I believe that house prices and consumer debt levels are overextended in Canada and that a “Minsky-moment” may be developing in Canadian credit markets. [Let me explain why I have come to that conclusion.] Words: 1892 Read More »
An excellent summary of the issues around Canadian house prices. Please see my thoughts on the topic on our site and also in today’s Globe and Mail ROB comment page.