Canadian Housing Bubble At Risk

After the downgrades of the major Canadian banks investors must question how long the real estate bubble in Canada can last and what impact that could have on the economy.


Levels of mortgage related debt in the Great White North have gone unchecked for the better part of the past 5 years. And now the Bank of International Settlements has flagged Canada for potential credit risks.

Sources: BIS Quarterly Review : National Post

The housing bubble in Canada has been fueled by similar speculative behavior that was seen during the height of the housing bubble in the United States that lead to a massive market collapse.

Of course this is a quasi replay of a similar debt bubble from 10 years ago, except this real estate bubble is happening in Canada, a country that had avoided much of the debt crisis of 2008/09.






Yes the Canadian economy was impacted by the global recession, but the country did not lose any  banks in the process and the housing market remained intact.

The days of availability of very cheap credit has fueled huge amounts of residential development worldwide. Developers have flooded many of the world's cities with every type of housing imaginable. The common theory is build it and dump it onto the market while everyone is feeling good. Individual speculators are following in suit by buying it up as fast as it is going up. The world of extremely cheap money has warped many asset prices and real estate is a prime example of this. Very cheap credit has driven up the demand for housing and speculative behavior as a result, feeding on itself. It is a very simple concept to understand, yet it is ignored by those who believe loading the planet with excessive debt is good monetary policy. Not sure how weighing down the world with cheap debt is a solution, beyond encouraging speculative bubbles and artificially fueling inflation.

Canadian residential construction share of GDP has reached extreme levels and the speculators are still rushing into major Canadian markets without a care in the world. The Central Bank of Canada has done little to stem the tide of the ever expanding outstanding credit. Money is cheap (overnight rate is 0.5%) so all must be fine, right? Or maybe its 2008 all over again.


Sources: Haver Analytics : BMO Economics

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