What you need to know about the housing bubble

Giving thanks to tighter banking regulations and lending standards, Canada has been able to sidestep out of control housing prices.

However, there are economists that argue that the Canadian housing market is a bubble and it is about to burst.  In the Financial Post today, Robert Shiller and David Rosenberg cited the following as reasons to worry:

  • Other than a short period during the recession, Canadian house prices have been steadily climbing since the late 1990s;
  • Canadian homes were more unaffordable in the second quarter than their historical average;
  • The cost of owning a home, as a percentage of income increased for the second quarter in a row;
  • House prices in Toronto and Vancouver are higher than their historical averages;
  • The debt to disposable income ratio is at 155%.  The U.S. levels hit 160% at the time of the housing market crash;
  • The use of home equity lines of credit is adding to the worry; and
  • Regulators have adjusted current policies to cool the housing market.

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