Canadian home prices should be ringing alarms

Yet more evidence that the presence of a significant housing bubble in Canada is blatantly obvious to every economist on the planet BUT those whose livelihoods depend on its continued existence.

Dean Baker of the Centre for Economic and Policy Research has warned that Canadian home prices are unsustainable:

“Noting that average incomes in Canada are lower than those in the U.S. and land values are not appreciably higher, the fundamentals don’t justify the price premium, Baker said in an interview.”

“It looks me like you have some real problems,” he said.

“There’s a lot of things that look ominous. Debt to income ratios in Canada are close to what they were in the U.S. at the peak of the bubble, so there could be some pretty serious fallout.”

Canada could see house prices collapse by 25 to 30 per cent if interest rates rise by about two percentage points, he said.”

Before you shrug him off as just another economic talking head, consider that this is the same man who issued this prescient report on the state of the US housing market in 2002, well before it was even on the radar of most economists.  The man knows a bubble when he sees one.

He now joins the list of other renowned economists who all foretold the US housing crash and ALL see Canadian home prices set for a significant decline:

Robert Shiller

“The Canadian housing market could face a similar housing bust to the United States, particularly in more bubbly markets as Vancouver and Calgary”

Paul Krugman

“Canada cannot be complacent in the face of disturbingly bleak global conditions, because Canadians spend too much relative to their household incomes and the country’s housing bubble has yet to burst.

David Rosenberg (now working for a Canadian firm, but called the US bubble while still working at Merill Lynch)

“…Housing values are anywhere between 15 per cent and 35 per cent above levels we would label as being consistent with the fundamentals. If being 15 per cent to 35 per cent overvalued isn’t a bubble, then it’s the next closest thing. We are talking about two to three standard deviation events here in terms of the parabolic move in Canadian home prices from their lows. So, if it walks like a duck …”

Mike Shedlock

“A Canadian housing crash is a given. The only thing that remains to be seen is how deep the crash is.”

All of these economists correctly called a US housing crash and ALL of them see a significant correction for our own market.  The chorus grows!

-Ben

 

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7 Responses to Canadian home prices should be ringing alarms

  1. William says:

    Nice research on that post. “Experts” with no hidden agendas are saying a crash is coming. “Experts” working for real estate boards and brokerages are saying no crash is coming.

  2. Pathrik74 says:

    It would be interesting to have a list Canadian economists, if there actually are any, who are calling the housing bubble. When all is said and done it would be nice if those who accurately call a spade a spade get some credit. Bloggers of course, but also the few economists on different sides of the spectrum. The Canadian Center for Policy Alternatives are the only academic or institutional types of people on record with reports calling the housing bubble. Perhaps there are others…

  3. vreaa says:

    Pathrik ->
    David Rosenberg has been calling the bubble a bubble for quite some time:
    http://wp.me/pcq1o-SZ

  4. Pingback: Don Coxe on the Canadian real estate market and implications for investors | Financial Insights

  5. Pingback: Who’s the ‘hare-brained’ one? More hot air from perma-bull Jay Bryan | Financial Insights

  6. Pingback: Capital Economics report that rising interest rates could trigger housing collapse | Financial Insights

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