There My Be A Potential Real Estate Bubble In Canada

The Canadian residential market has continued healthy despite the economic mortgage issues that affected the US, and the predicted nationwide housing market bubble doesn't seem to materialize Analysts were worried that the Canada Mortgage and Housing Corporation's (CMHC) plan to keep the credit flowing by authorizing risky loans had created an alarming 7.4:1 ratio of income to housing prices -- nearly 50 percent more than the American ratio prior to the U.S. housing bubble burst CMHC's shift in policy did have an effect on the average Canadian household debt, and the 9.3 percent rise in only a year being the obvious result.

Some analysts, like the 84-year-old investment advisor Stephen Jarislowsky -- who is reportedly worth $1.85 billion -- said at the beginning of the year that he believed that the strategy utilized by the CMHC would backfire. Jarislowsky flatly contradicted the statements made by Finance Minister Jim Flaherty claiming that the indications did not forecast to a forthcoming real estate bubble. Jarislowsky strongly assumed that the government's measures were not going to strengthen the economy. In a phone conversation, he stated that the CMHC ".has created the reverse effect of what was acceptable. " They have basically persuaded people to purchase houses based on cheap mortgages." This can be witnessed in the City of Toronto where the prices of Toronto properties as increased by quite a bit over the years as purchasers charged into the market.

In February, the Wall Street Journal investigated the potential of a Canadian real estate bubble and pointed out that bold lending practices implemented after the 2008 crash of the U.S. based Lehman Brothers could have failed unless the government stabilized the lending practices In January of 2010, the Bank of Canada representative indicated the reluctance of the banks to take measures, saying that "if the Bank were to increase mortgage rates to cool the housing market now we would, in essence, be dousing the entire Canadian economy with cold water, just as it crawls out from recession". Condominium owners in Toronto are watching this extremely closely because a rise in interest rates would have a huge impact on condos for sale in downtown Toronto which would affect sales.

The Canadian Real Estate Association figures that were released for the first half of 2010 does show that the start of the slowdown in 2008 translated into a sharp drop in residential real estate sales. However this was short-lived, and the recovery has not been as drastic as anticipated Even with a 9.5% drop in the May 2010 sales, once the year-over-year price gains are figured in, the average settled down to 8.4%. This adjustment in the real estate market is a natural result of purchasers not being quite as anxious to invest as the supply of homes increases and prices climb slowly, but proportionately. If you own a house in Toronto you may be able to withstand a decrease in the value of your home but smaller areas like the real estate market in Hamilton could notice a considerable decline in housing values.

Pascal Gauthier of the Toronto-Dominion Bank mentioned that the bubble situation "made a lot of people nervous," fearing a massive crash comparable to the 30% drop in U.S. housing prices This summer, however, he is noticing that the temporary elements that drove up home prices resulted in only a small fall in a clearly overpriced market and the attitude is a "180-degree change from six months ago". Although the markets in Toronto and Vancouver may experience a 7 percent fall that will bring down the national average, Gauthier believes they will bear the brunt of the decline, while regions like the Maritimes and The Prairies and may well find by the end of the year that they are experiencing increases once again.