Fears of a housing bubble in Canada overblown, report saysMar 25th, 2014 Fears that a housing bubble is brewing in Canada are overblown, according to a new report by the Conference Board of Canada.
Updated: Mon, 24 Mar 2014 14:15:41 GMT |
Fears that a housing bubble is brewing in Canada are overblown, according to a new report by the Conference Board of Canada.
While house prices may be headed for a modest decline in some markets, there is no bubble to pop, the report says.
As the price of homes continues to rise, low interest rates and low mortgage rates are keeping affordability at reasonable levels, according to the report.
Average home prices in February rose an annual 10.1 per cent across Canada, with large increases in Ontario, B.C. and Alberta.
The report says those calling it a bubble are looking at the wrong statistics — by focusing on the ratio of house prices to incomes and the ratio of house prices to rents.
Instead, the report looks at the ratio of principal and interest costs to incomes and to rents, and finds that they are in the same range they have been in for the past 20 years.
"Mortgage costs, not just house prices, are the principal deciding factor for potential home buyers," according to Robin Wiebe, senior economist at the Conference Board's Centre for Municipal Studies and author of the report.
"Mortgage rates are expected to rise this year, but not dramatically, because the Canadian economy remains in slow-growth mode," he said.
The report also looked at the real estate markets in six major Canadian cities, and found there to be a good balance of buyers and sellers in each, indicating a healthy market.
In February, the IMF and TD Bank said the Canadian housing market is 10 per cent overvalued, while in a report released last November, ratings agency Fitch said prices in the Canadian market are overvalued by 21 per cent.
All three said the market would find a soft landing, without a painful crisis when prices drop.