Canadian housing bubble still looms

Tuesday, 31 August 2010



Though home sales are slowing, prices in six of Canada's largest housing markets are in bubble territory.

Home prices are sitting at 4.7 to 11.3 times Canadians' annual income - much higher than historical comfort levels of between three and four times income, according to a report by the Canadian Centre for Policy Alternatives. The report defines a bubble occurring when housing prices increase more rapidly than inflation, household incomes and economic growth.

"To see all of the major markets outside of that comfort zone is very unique and concerning," said David Macdonald, a research associate who wrote the report called "Canada's Housing Bubble: An Accident Waiting To Happen."

Sales have fallen by 25 per cent since reaching its peak at the begnning of the year. But canadian home prices were up 13.6 per cent in June from a year ago in Canada's major cities.

"The concern today is all six major markets, not just Vancouver and Toronto, are out of that comfort zone," said Macdonald, including Calgary, Edmonton, Ottawa and Montreal. "All six major markets now have an average price of over $300,000."