Canada's Housing Bubble

Rebecca Wilder  May 11, 2009 http://www.newsneconomics.com

The weak conditions in the labor market - dragging demand for new homes and input prices for building - and commodity prices (inputs) is driving down the value of new homes in Canada. From The Daily:

Contractors selling prices decreased 0.5% in March compared with a 0.7% decline in February. This resulted in a New Housing Price Index of 154.6 (1997=100). Between February and March, prices declined by 1.2% in Calgary and Edmonton, followed by Vancouver (-1.1%) and Victoria (-0.9%). In Calgary and Edmonton, declines were attributed to lower material and labour costs and lower lot prices from developers. In Vancouver and Victoria, builders reported lower prices due to competition and slow market conditions.

The chart illustrates new home prices in Canada and the US (average), both indexed to 1997. Although the market in Canada is turning weak, it is unlikely that it will fall as hard as the market in the US. The fundamentals are strikingly different.

The Canadian market is reacting to weak economic fundamentals, rather than an outright crash in the housing market stemming from overly-indebted households.

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