IMF Sees A Bubble In The Canadian Housing Market

Home Housing Complex Urban Sprawl Ontario

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It may be time to short Canada.A recent report published by the IMF examines the state of the Canadian housing market in a section titled “How Vulnerable is Canada’s Housing Market?”  Canadian real estate prices quickly bounced back from the 2008 dip.  But the IMF thinks they are due for a correction.

Their points:

  • Real estate model indicates prices are overvalued at nearly 13 per cent
  • World Economic Outlook suggests a decline of 6 per cent through 2015
  • Price-to-income and price-to-rent ratios remain above historical averages
  • Interest rates are very low, so any rate increase would put additional strains on already highly indebted households.

Doug Alexander and Sean Pasternak at BusinessWeek provides even more evidence. Low bond yields have caused lenders to drop mortgage rates to lure borrowers: three of the countries largest banks now offer financing at 2.99 per cent.  From BusinessWeek:

“Investor-owned condo properties have got to be a cause for concern, just because of supply and demand,” Bank of Montreal Chief Executive Officer William Downe said Jan. 10 at a banking conference in Toronto. Royal Bank CEO Gordon Nixon said “there’s no question” that the condo markets in Vancouver and Toronto are the most vulnerable in the country.

Canadian home sales in 2011 increased 9.5 per cent to C$166 billion, they reported, as home prices rose 7.2 per cent.

Here’s a look at pricing from the Canadian Real Estate Association:


[credit provider=”Canadian Real Estate Association” url=””]

Last week we chronicled rising Canadian unemployment; and those declines have actually been buoyed by construction hiring.