With sales activity surging and home prices reaching the stratosphere, the question on everyone’s mind is: Are we in a bubble?
According to Ed Devlin, founder of Devlin Capital and senior fellow at C.D. Howe Institute, the answer is: It’s debatable.
“I think the housing market is obviously very strong – whether we’re in a bubble or not is, in my mind, quite debatable,” Devlin told Bloomberg Markets in a recent interview.
Read more: CMHC explains what kept the Canadian housing market strong during the pandemic
“[However], I would say probably not – and the main reason I would say that is that it’s really a demand problem driven by extremely loose monetary and fiscal policy rather than a supply problem where I don’t really see a huge overbuild.”
Devlin told Bloomberg that it isn’t surprising that many Canadians, who have hoarded cash during the pandemic lockdowns, are now eager to take advantage of a low-rate environment – although he added that a “targeted response” may be needed to manage the current state of unaffordability in the housing market.
“If the housing market is on fire but the broader economy still needs support, our response should be targeted,” said Delvin. “I would recommend looking at the source of the problem. So, it’s been incredibly loose monetary policy and loose fiscal policy – which by the way I agreed with completely when Ottawa was acting that way in the depths of a pandemic. But now we’re starting to see some of the unintended consequences of those actions, and I think they have to be clawed back. [Now] the Bank of Canada won’t hike rates just because of housing – they’ve said that many times – but Ottawa has got a lot of tools to move the mortgage rate higher.”