An Edward Jones report released this week was the second report to hint at the possibility of a housing bubble in Canada. It seems likely that the rise in prices is likely due to speculation rather than economic fundamentals.
The economy has been somewhat counterintuitive this year.
“The average resale price of a home rose by 19.3 per cent in 2009 to $337,410, despite higher unemployment and the start of economic recovery, said Edward Jones.” Yourhome.ca
When housing price data is compared with consumer income and rental data it seems that these prices increases could not have been caused primarily by economic fundamentals. What does that mean? Houses just aren’t worth as much as the market is dictating right now!
In addition, consumer borrowing hit an all time high of 146.2 per cent of disposable income by the end of 2009. And that extra debt could be crippling with the impending interest rate hikes (i.e. an increase of 3% in rates could translate into an extra $444 per month on a mortgage of about $250,000). In aggregation, that means a decrease of $1.8 billion in consumer spending. Holy crap. That could REALLY hurt.
But, we don’t have to be quite as worried as our neighbours to the South should have been before their housing collapse. We don’t have as many wonky mortgage products and Canadians are required to have more home equity than their American counterparts.
So, yet again, we’ll have to wait and see…but it’s looking like all signs point to housing bubble. I just hope prices fizzle rather than pop.