Canada is in a housing bubble. There is no other way to put it.
Canada, as a whole, is experiencing a housing craze fed by the Covid-19 pandemic and the demand for more space. Follow that up with rock-bottom interest rates and millennials moving into their prime-buying years – and you have the perfect storm.
While skyrocket home prices are great for sellers the buyers that get stuck holding these bags might feel differently. Especially when interest rates increase. Canada has seen a more dramatic price run-up than all of the Group Seven countries. “According to housing data collected by the Federal Reserve Bank of Dallas, nominal house prices in Canada rose at an annual rate of about 16% in the fourth quarter from the previous three-month period, outpacing the U.S., the U.K. and elsewhere.” States the Wall Street Journal.
Alarm Bells Are Sounding
Economists from Canada’s big banks are issuing warnings. Derek Holt, Scotiabank’s Head of Capital Markets Economics, said, “Ottawa has been caught completely off-guard in the magnitude of the housing response to very low financing costs,”
BMO Economist Robert Kavcic’s report to clients read, “Recall that 2016-2017 was characterized by mini-bubbles in and around Toronto and Vancouver that elicited macroprudential policy responses at both the federal and provincial levels. He believes we’ve reached the same situation today.
There Is A Price To Pay
You know what they say, what goes up, must come down and these prices have been skyrocketing for some time.
Mortgage rates will have to increase as bond yields rise. Canada also closely follows the US market. If their interest rates go up, you can be sure Canada’s will too. However, Poloz believes that keeping interest rates at historically low levels is a small price to pay versus a deep recession. But, to us, it looks like a deeper recession is on the horizon!