Canada’s Housing Bubble Resembles That Of The U.S A Decade Ago

Canada’s housing markets are receiving same signs that were received during the subprime mortgage crises in the U.S. in 2007, as the Canadian market since the last two decades has being pilling debts on new-home buyers and enriching homeowners as prices are constantly on the rise sending alarms to policy makers.

Chief economist David Rosenberg told BNN at Gluskin Sheff “this bubble is on par with what we had in the states back in 2005, 2006 and 2007. We have to actually take a look at the situation. The housing market here is a classic price bubble. If you don’t acknowledge that you have your head in the sand”.  Though in the inside, this bubble could be seen as normal but in reality, its seemingly catastrophic claws are more than visible building a “nation of debtors”.

Toronto and Vancouver being the major real estate cities in Canada have significant impacts on the fate of the Canadian market but reality holds it that just because the U.S. housing markets crashed doesn’t mean Canada will face the same fate, but it’s important to make comparisons and take notes of weakness and observations.

According to the international home prices database, Canada has currently surpassed the U.S. in 2006, which was a year before the subprime mortgage meltdown. According to the Economist measures of housing affordability which was taken by comparing home prices to both income and rent and Canada is far beyond the peak of the U.S. in both cases as Canada is seen to be excessively overpriced.

Taking low interest rates as a means of fueling Canada’s housing bloom, Canadian households are more indebted than the American counterparts were according to each county’s GDP. This justifies why a lot of Canadians use a huge sum from their disposable income to pay debts and this resigns them to a precarious situation. Canada is left at a state of dilemma because the more homeowners take on debts, the more painful the contraction becomes.