The left-leaning think tank says that Canada’s big cities—Vancouver, Edmonton, Calgary, Toronto, Ottawa, and Montreal—are all running hot and could be heading for a massive correction in real estate prices.
Others disagree.
“Canada is experiencing, for the first time in the last 30 years, a synchronized housing bubble across the six largest residential real estate markets in Canada,” says the report.
On average, housing prices in those markets, which account for around 40 percent of all real estate sales in Canada, are over $300,000. Historically, prices have held stable between $150,000 and $200,000 when adjusted for inflation, according to the report.
But while prices have risen, income has not kept up.
“Housing prices for 20 years, prior to 2000, stayed in a narrow range of between 3 and 4 times provincial annual median income. Today, however, housing prices adjusted for income are out of their historical range, costing 4.7 to 11.3 times Canadians’ annual income,” the report says.
That skew explains in part why Canadians have such high debt levels. The report points to consumers who have entered the housing market during historically low mortgage rates with some of the highest consumer debt to financial asset ratios in the world. The OECD puts Canadians at the top of 20 OECD countries for how much debt they carry versus the assets they have to cover it.
High debt and easy mortgages mean homebuyers are often stretched to the limit and especially vulnerable to mortgage rate increases.
“The bursting of housing bubbles is a rare event in Canada, but the steep rise in house prices in so many cities displays all the hallmarks of an accident waiting to happen,” says the report’s author, David Macdonald, a CCPA research associate.
The CCPA says that Canadians could be heading for trouble as mortgage rates rise from their current unprecedented lows.
“As house prices rise outside of their historical range, they become much more susceptible to mortgage rate changes,” says Macdonald.
“The hottest six real estate markets could be in for a correction at best or, at worst, a bubble burst. Rate setters at the big banks are in the driver’s seat now as mortgage rates inch up. They need to hit the brakes lightly.”
