Canada's Housing Bubble

Feb 09, 2010 Marco A. Murillo

Finance Minister Jim Flaherty said this weekend the Canada is not in a bubble but facts tell the opposite, is he not seeing the moose on the road or has he started to have visions of an endless summer?

The perspective from the cabinet's member is so twisted, that the Globe and Mail reminded him today that according to the Canadian Real Estate Association, prices of houses rose 19 per cent nationally last year, and are set to climb another 5.4 per
cent this year to a record this year. A friendly message on his breakfast table if he needs to get grounded anonimously.

The daily newsprint summarized the factors for the climbing house prices as:

1. A strong driving demand,

2. tight supply,

3. expected rising rates,

4. a rush to buy before the new sales tax kicks in,

5. and a rebound in confidence in the economy.

Even small bankers would rather see the market refreshed by tight mortgage rules such as a minimum down payment to 10 per cent from 5 per cent and reducing the maximum amortization period to 30 years from 35, in order to ensure payments.

The worst is that Bank of Canada's Governor Mark Carney keeps supporting Mr.Flaherty by repeatedly saying there's no bubble. He has cautioned Canadians not to pile one debt on top of another but that is common sense, that kind of advise we get
at an arms lenght. Mr. Carney should concentrate on making the decisions required to manage interest rates and inflation so that we don't have go through the same credit crunch as in the United States.