Market imbalances inflating housing bubble – analyst

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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.
  • DAR on 2016-04-21 2:33:04 PM

    This article, like 99% of Canada housing bubble articles that I read, offers up the massive price run-up, or extreme price-to-rent ratios, as the primary pieces of evidence that housing is over-priced and we are in a bubble. But high "sticker price" is not really a meaningful indicator that we're in a bubble. It doesn't matter what the "sticker price" is. What matters is what people can afford to pay on a monthly basis. With today's ultra-low interest rates, monthly carrying costs seem to be manageable by most households, even with the high "sticker prices" we are seeing. The only factors that will cause prices to retreat are increased unemployment and/or increased interest rates.

  • TWH on 2016-04-26 4:12:52 PM

    Prices Nationally would retreat by 32% immediately when the sales mix returns to it natural levels (pre 2013). Remember housing bubbles are measured through Average Buying Price paid and Canada has never in its history had the current sales mix take place.
    No need for interest rates, unemployment or mass extinction but rather a shift back to the natural order is all that is needed.
    As that happens panic selling sets in and real prices begin to drop compounding Sales Price deflation.
    Contrary to popular myth that is how the GTA bubble burst last time around.

  • BJ on 2016-04-27 10:06:52 AM

    “housing is bought out of wages and salaries"? REALLY? In Vancouver/Victoria it isn't. Housing is bought with cash. Often foreign cash or as a result of people selling with a large profit (as a result of foreign cash driving up prices). Salaries and interest rates are almost irrelevant on the West Coast - unfortunately. First time buyers are getting pushed out as they can't even save to keep up with house appreciation. Wealth over wages - I don't see that changing barring significant Government controls over foreign ownership - good luck with that.

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