Vancouver and Toronto have continuously shown exceptional performance over the past two years, making Canada one of the most attractive and dynamic real estate markets globally. However, an assortment of market imbalances is increasing the likelihood of a housing bubble burst, according to an observer.
Analyst and author Hilliard MacBeth counselled would-be buyers to remain extremely careful not to get sucked into the purchasing whirlwind that characterizes Canada’s most in-demand cities, adding that the current situation has notable similarities with the conditions prior to the ‘90s dot-com crash.
“The original premise of the bubble is the fact that housing prices have gone up two-and-a-half to three times, pretty much all across Canada,” MacBeth said, as quoted by RCI
. “[The] outrageous levels of Vancouver are a little bit more stretched, but really not that much different from Regina, Saskatchewan, for example, in terms of the pace of growth in the house prices, but wages have not.”
MacBeth added that the lopsided performance in Canada’s housing sector, where the best performing markets account for a massive portion of national real estate growth, has sown the seeds of later failure.
“Because housing is bought out of wages and salaries there’s a point which is reached eventually where the household budget just can’t stretch anymore and we’re at that point in Alberta and Saskatchewan, and we will be at that point across Canada very soon,” he explained.
MacBeth pointed at another area of imbalance—namely, demographic debt—as a potential trigger for the long-feared bubble burst.
“There is so much debt involved that there are going to be some very, very difficult circumstances for families, including personal bankruptcy and that sort of thing,” the analyst said. “One of the things that the boomers are doing, which is very worrisome, is they’re going deeper into debt, faster than any other age group in Canada.”
MacBeth warned against complacency on the real estate industry’s part, and advised would-be market participants to not put all of their eggs in this particular basket.
“The interesting thing about bubbles and booms is when you’re in the middle of them you can never see that they are bubbles, it always feels like it’s normal,” he concluded.