Canada's Housing Bubble

Analysis of the real estate bubble in Canada --

Bubble vs. Rubble? Rosenberg Weighs in on Canada-U.S. Housing Divide Print E-mail

Jul 16, 2012 By Don Curren

Many economists balk at using the “B-word” to describe Canada’s housing market. Gluskin/Sheff’s David Rosenberg doesn’t.

And remember, he was the guy who called the U.S. housing bubble.

In a report out this week, Mr. Rosenberg describes the different real-estate market landscapes on either side of the Canada-U.S. border–”bubble versus the rubble.”

The discrepancy continues to widen. On Thursday, Canada’s statistical agency said new home prices in May rose 0.3% month-over-month and 2.4% year-over-year.

Mr. Rosenberg gained a high profile in financial markets when as the chief economist of Merrill Lynch he rang some early warning bells on the housing market crisis and subsequent recession in the U.S.

Mr. Rosenberg’s message now: Housing prices in Canada and the U.S. have never been this polarized, with Canada’s prices on average twice that south of the border. Historically, they have been close to parity, he says, and they can’t stay this far apart forever.

Toronto and Vancouver are “undeniably desirable places to live,” but that doesn’t mean that prices in Vancouver should be 4.4 times above the U.S. average, and Toronto three times higher, he writes.

That seems like an imperfect comparison, since Toronto and Vancouver are Canada’s most expensive cities. A more telling parallel might be withNew York and San Francisco, respectively. But Mr. Rosenberg wasn’t available to provide city-by-city comparisons.

Activity in the Canadian market should cool off, with condo sales vulnerable to a 20% drop in hot spots like Vancouver and Toronto, Mr. Rosenberg writes. And another tightening of Canadian mortgage rules—which went into effect this week–is sure to “bite into demand,” he writes.


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