Canada's Housing Bubble

Jan 19, 2010 David Ljunggren Reuters

Ottawa - Canada's composite leading indicator soared 1.5 percent in December, the largest month-on-month increase for almost 27 years, spurred by household spending and a surging stock market, Statistics Canada said on Tuesday.

The median forecast of analysts in a Reuters poll was for a 1.0 percent increase in the index after November's 1.3 percent rise. The last time Canada saw 1.5 percent growth in the leading indicator was in February 1983.

The unexpectedly strong performance was the latest sign to suggest the worst of the recession is over. For the second consecutive month, none of the index's 10 components fell.

The housing index climbed by 3.0 percent, the eighth consecutive monthly increase, while the stock price index was up by 1.7 percent. Manufactured goods new orders gained 8.1 percent, fueled by strong U.S. export demand.

Existing home sales, fueled by low interest rates, hit a record high in December while housing starts continue to gather pace. Although some economists have warned of a potential housing bubble, the Bank of Canada says there is no cause for serious concern.