Canadian housing bubble

The debate about the possibility of a Canadian housing bubble bursting has loomed large in the minds of many analysts for some time now. Since housing prices continued to rise steadily over the last few decades in Canada, some have feared that the nation may find itself in the midst of an eventual and devastating housing bubble burst which could consequently crash the entire country’s economy as well. Understanding whether or not such a situation has actually taken place requires a closer look at housing trends in Canada over the last few years and an analysis of potential causes and effects of a bursting bubble.

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The housing market of Canada has certainly evidenced significant fluctuations in recent years that may point to an impending bust. Specifically, after a period of steady growth in home prices between 2010 and 2017, the market appears to have cooled off to some degree. CoreLogic, a prominent research organization, has for example projected that the market might see a further decline in year-over-year home price growth in 2019 and 2020. Thus, the National Bank of Canada has issued a warning that recent overvaluation puts the industry in danger of a housing bubble burst.

The cause of the alleged housing bubble is thought to derived from multiple sources. On the one hand, loose monetary policies, in response to the 2008 financial crisis, enabled many to borrow money on the cheap in order to engage in home ownership relatively easily. Furthermore, policies such as the B-20 regulations implemented by the federal government in 2018 are thought to have exacerbated potential harm by preventing potential homeowners from accessing affordable mortgage loans.

In addition to low interest rates and far-reaching regulations, the current Canada housing market is thought to be overvalued due to population stagnation. After staying relatively overextended from 2008 to 2015, many would-be home buyers in Canada no longer have the means nor the job prospects to invest in property. The resulting undervaluation, in an otherwise continuously increasing market, then serves to artifically inflate home prices in certain areas, and consequently makes a crash seem more and more likely.

It is no exaggeration to suggest that a bubble burst in the Canada housing market could, in fact, lead to massive economic disaster. If it were to occur, widespread panic could put incredible strain on banks and other mortgage lenders both big and small, draining liquidity and causing lenders to go insolvent. Huge amounts of moneys could also evaporate as the falling housing prices leads to clearances, devastating the prosperity of individuals and businesses alike. Not to mention, the financial situation of the government might give away as the loss of tax revenue would affect the fiscal sector . Consequently, economists project that such a burst could potentially trigger a nationwide recession.

Given all this, it is clear that the possibility of a housing bubble occurring – let alone burst – in Canada is quite real. The potential for catastrophic economic damage is real and must not be taken lightly. Once again, understanding whether or or such a situation has actually taken places requires a careful analysis of Canada’s housing trends by and an awareness of the potential associated causes and effects.