Tuesday, January 29, 2013

The Canadian Housing Bubble

Interesting article about Canada's housing bubble, that is illustrated with this chart.
House prices relative to rent is for many reasons an imperfect gauge, but not entirely useless either. Canadian house prices is therefore almost certainly way too high.

The article says the Bank of Canada is aware of the problem but are trying to deflate it only gradually by making mortgages less available. The reason why they try that approach instead of raising rates is that they hope this will help them avoid the kind of recessionary aftermath that housing bubbles in for example the U.S. and Spain had. But with debt levels still rising to new record levels relative to disposable income, it seems that they have been unable to start achieving that slow and gradual deflating.