Be careful dear readers. Remember that the central banks of western countries have pushed interest rates down in an attempt to spur economic activity over the last several decades. As a result, consumption has been brought forward. That has created a number of bubbles that we have all heard about: dot-com, real estate, decreasing purchasing power of the currency for example. Even here in Canada, despite being more conservative in our practices than our neighbours to the south, we are not immune to bubbles.
CCPA says bubble to burst, CD Howe dismisses, CMHC predicts soft landing
Three significant housing reports published yesterday paint very different pictures of the future of Canada’s housing market.
CD Howe Institute says that in spite of recent dips in Canadian house prices, we will not experience a US-style housing crash because of our stricter government policies and tighter underwriting standards.
However, the report published by the Canadian Centre for Policy Alternatives, has a different view on what will ultimately cause the bubble to burst. David Macdonald, the economist behind the report entitled “Canada’s Housing Bubble: An Accident Waiting To Happen”, says that affordability and low interest rates are the issue.
With average house prices at 4.7 to 11.3 times Canadians’ annual income — much higher than historical comfort levels of between three and four times income, home owners may not be able to cope once interest rates goes back to their historic norms.
