Canada's Housing Bubble

Sep 03, 2010 Andrew Mayeda communities.canada.com

What have Canadians learned from the global financial crisis?

Not much, according to a new report by Scotiabank.

Scotiabank analysts Derek Holt and Gorica Djeric note that housing prices in Canada are at all-time highs, despite the fact that Canadian household finances "are more stretched than ever before." Within six months, Canadians will be more heavily indebted on average than Americans, who have been purging themselves of the debt that racked up before the recession. This leads Holt and Djeric to believe that the Canadian housing market will soften over the medium term.

Here's an excerpt from the report:

"Canada deleveraged on public and corporate balance sheets in the 1990s before just about anyone else did, such
that serendipity played a role in the country being able to outperform others over the past decade.  But did that
earlier painful experience, combined with the lessons of the current ongoing global crisis, impart greater wisdom
onto Canadian businesses and households to stand them in good stead under current circumstances?  Or did it
facilitate a certain insouciance that resulted in the creation of current imbalances that could expose the country to
risks going forward?  We think the latter complacency angle has merit such that the net effect on the Bank of
Canada should be mild further policy tightening but at a cautious pace that balances too-low-for-too-long against
disrupting current imbalances in the Canadian economy."