Increasing concerns over imminent Canada housing bubble

Canada, 1st May: According to a latest report by Edward Jones, Canada house prices are touching new highs every day and the fears are that they might decline with Canada likely to see a housing bubble in the coming times.

Edward Jones’s report clearly states that Canada’s housing market is seemingly heading towards a housing bubble.

No doubt, Canada’s real estate market has not experienced extreme downturns as that of US and other nations, the co-authors of the report, Craig Fehr and Kate Warne have stated. But, the present conditions prevalent in the Canada housing market are quite similar to the conditions experienced by the above named nations just before the downturns actually occurred. Hence, we need to become aware and take decision regarding housing investments in Canada accordingly. 

Any bubble is undoubtedly caused by cheap money that flows into the market through investments by large number of spectators. This ultimately results in increasing prices to the maximum while ignoring all the underlying basic weaknesses. That is exactly what seems to be happening in case of Canada housing market.

The report says there are three main prerequisites for any bubble to form. These include sharp increase in prices, easy to get credit and laxities in regulations making them less effective.

Presently, rate of unemployment in Canada is quite high while the nation is passing through a period of unstable economic recovery.

Under such conditions, the housing market of Canada is witnessing a speedy recovery forcing the economists to conclude about imminent lower prices in the near future.

Prices in real estate market of Canada have increased by nearly 20 percent in the year 2009. Reason behind this increase is easier access to cheap funds for investors in Canada which has allured many Canadians to become home owners in Canada.

Although, the Canadian government is taking serious steps to regulate availability of mortgage through stricter norms, but the risk for investors in Canada housing market is still there. The risk is likely due to rising rates of interest, rising mortgage costs, high levels of consumer loan and increasing new supply. All these factors collectively have the potential to bring down the demand and cool down the Canada housing market.

The message is clear—Canadians beware and prepare for possible effects of a downturn in Canada house prices.