Canada's Housing Bubble

Mar 29, 2010 Tim Seymour emergingmoney.com

Canadians have been blessed with a relatively strong mortgage industry and housing markets throughout the U.S. credit crunch. Now there are signs that the dip is coming.

Home prices in Canada are booming along, leading central bankers and the Wall Street Journal alike to fret about whether a steep correction — maybe 25% or so — could be on the way.

The trigger could be something as simple as a new round of idle plants across the border from Detroit, where many car parts are made and much of the Canadian industrial sector is still centered.

Job losses in Ontario are already a topic of concern for Canadian commentators and could be the trigger that hits the housing market.

As it is, Canadian mortgage debt levels — usually considered extremely conservative, with the 30-year loan almost unheard of until recently — are now above their U.S. counterparts.

That is correct: Canadians now owe more on their homes than their southern cousins.

The Canadian dollar (quote) hit an all-time high against the greenback back in 2007, but is still universally loved. That love could be tested if the currently robust northern economy shows any signs of coming off the wheels.

In that event, CAD could be in play, which may give the loonie ETF FXC (quote) a bit of volatility down the road.