More Confusion On Canada’s Housing Bubble

By: Daniel Rattanamahattana on September 24, 2012

Once again a major financial institution has weighed in on the state of Canada’s housing market and once again it conflicts with a report from another financial institution. RBC, Canada’s largest bank, only days ago released a report saying the high condo prices in Toronto are not a sign of a bubble; that demand is matching supply and therefore high prices are a sign things are good. This after both the government and the central Bank of Canada have made adjustments in their strategies to cool off what they say is Canada’s overheated market.

Now, there’s a new opinion to send things the other way again. Capital Economics, one of the biggest macroeconomic research firms in the world, has weighed in on the confusion of Canada’s housing market and concludes it is indeed in a bubble that may be about to burst. Their claim is that since Canada’s average home prices have stopped growing as fast as they were earlier in the year, which is financially accurate, it is a sign that consumer demand is not keeping up with the skyrocketing price increases. They say that prospective buyers are refusing or simply unable to achieve the mortgages needed to buy homes at such high costs, and sellers are now unable to get the full value they believe their homes are worth.

While this may lead some market watchers to believe things are calmly slowing down, Capital claims it is just a start and that over the next few years Canada’s housing prices could crash as much as 25 percent. This prediction together with the federal government’s changes in government backed mortgages, points to a sign the market is more out of control than RBC and other banks may want purchasers to believe.

With all the conflicting reports on Canada’s housing market it’s very tough to get a good reading of what is actually going on. What has been reported to be true is credit is tightening up and mortgages are getting tougher to receive, especially for first time home buyers. If this is a sign that governments, banks, and lenders really are worried about Canadian debt levels then the soaring cost of homes is already too high for the average Canadian to purchase. If banks really want Canadians to believe this is a buyer’s market, something has to be done about the overblown housing prices because any move to loosen access to credit has been taken off the table by government intervention. The thing about a bubble is eventually it will burst.

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