When Canada’s Housing Bubble Pops, It Will Cause Misery and Ruin
The price of Canadian homes has increased faster than those of any other member of the OECD. Rising interest rates now threaten to bring the market crashing down, destroying the lives of millions in the process.
In the last two decades, home prices have gone up by 375 percent in Canada. (Brett Gundlock/Bloomberg
As recently as ten years ago property speculators were a minority amongst Ontario’s home buyers. Investors now surpass first-time buyers as well as the total number of people moving between homes. According to a recent report, between January and August of last year investors were responsible for a quarter of house purchases in the province.
These speculative investments are, of course, driving up prices. They are also creating major problems for the economy as a whole because the rising cost of housing has increased the amount of private debt held by individuals. Whilst interest rates have remained low this debt has been sustainable. The possibility of hikes now threatens to bring Canada’s housing market crashing down.
A Disaster Waiting to Happen
The Bank of Canada is warning that a “frenzy of real estate investment,” combined with impossibly high levels of household debt, “could destabilize the economy as rates start to rise.” The central bank’s deputy governor Paul Beaudry suggests that a reckoning is fast approaching because the Bank of Canada now plans to increase interest rates. Beaudry warns that
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