Canada’s Housing Bubble

A report released by The Economist late in the summer described how Canada has all the traits of a housing bubble and impending crisis. Canada ranked second only to Hong Kong among 18 countries studied for the price-to-rent ratio of houses, and for the ratio of price to disposable income, Canada was second only to France.

This means that house prices in Canada are 74 percent overvalued in comparison to rent and 30 percent over a fair value for income, as reported by The Economist. Analysts compare it to a more drawn out version of the previous housing bubble in the United States, and in a list of overheated housing markets published in June, the Organization for Economic Co-operation ranked Canada third behind Belgium and Norway.

In a September report, however, Matthieu Arseneau of National Bank said, “We believe that the Canadian housing market will do better than what many observers, including The Economist, expect.” He said that their reports do not consider that immigration, largely in the 20-44 home-buying age-group, is helping drive Canadian population growth, and that this phenomenon will cushion the effect of soon-to-rise mortgage rates on the Canadian housing market.

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