Parksville Qualicum News – Is the Canadian housing market in a bubble?

Is the Canadian housing market in a bubble?

Published: December 24, 2009 7:00 PM

“It sure looks that way,” according to well-known North American economist David Rosenberg.

In his Special Report — Is the Canadian housing Market in a Bubble, Mr. Rosenberg adds his voice to a growing list of those from Canada’s financial establishment who are concerned about Canada’s growing household debt.

In fact, even the Bank of Canada is concerned, warning Canadians last week that growing household debt now represents the biggest risk to Canada’s financial system, and pleading with borrowers and lenders to remember that the current era of super-low interest rates won’t last.

With interest rates as low as they are, and with insured mortgages available with as little as five per cent down, and 35-year amortizations to boot, is it any wonder that Canadians are taking advantage of this window of affordability.

The problem is: affordability will disappear when rates go up.

And since rates have nowhere to go but up, it is not a question of if, but when.

Where will this lead?

Unlike the U.S., a banking crisis with associated bailouts in Canada seems unlikely.

Why?

The answer may surprise you: Canada’s banks have already been bailed out — through the Insured Mortgage Purchase Program — our government’s response to the credit crunch. For the most part, Canada’s banks have been able to get these high loan-to-value ratio loans off their books, with the help of CMHC (Canada’s version of Fannie and Freddie).

In other words, if this were to morph into a U.S.-style foreclosure crisis, it is not the banks that would suffer the most.

It would be the taxpayer, as the majority of the high-risk debt is insured by our government.

I should note that in his report Mr. Rosenberg is not forecasting a crisis, but does acknowledge that this is something near the top of his concern list, and that such an event he would “not exactly label as being non-trivial.”

To me, this is the proverbial elephant in the room, and needs to be considered when making investment decisions.

As we have seen clearly over the last year, financial markets (i.e. the stock and bond markets, currencies, interest rates, commodity markets, and real estate markets) are closely connected, and all affect one another.

Investors need to understand risks in order to mitigate them, and to identify investment opportunities.

Remember. There is always a bull market somewhere!

It may not surprise you to learn that best-selling author and financial forecaster Garth Turner has strong opinions on this topic.

Stay tuned for more on this as Garth will be in our area in the new-year to present his views on Canada’s real estate market, and on financial markets in general.

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About Tariq Sultan
Dear Readers, I am a dedicated Toronto, Ontario based real estate professional who has been successfully meeting and exceeding the needs of his clients for past several years. I am actively involved in the insurance, financing, and mortgage industry. Real estate is not only my career – it is my passion. I strive to continuously provide my clients with exceptional service to ensure they are fully satisfied when it comes to their real estate needs. For any real estate related inquires contact me today, I will be happy to assist you. Best wishes, Tariq Sultan

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