Canada’s housing market is due for a major correction

The Bank of Canada says home prices could be overvalued by as much as 30 per cent, but it continues to believe the market is headed for a soft landing. Housing could be overvalued by 30 per cent, Bank of Canada warns (The Star, December 10, 2014)

Slumping oil prices are likely to impact Calgary’s real estate market in the coming year, causing home prices to slow their rapid acceleration in Alberta’s largest city, according to a report by realtor group Re/Max.
Slumping oil prices to hit home prices in Calgary in 2015: Re/Max (Financial Post, December 10, 2014)

Calgary housing starts tumbled in November, with experts warning plunging oil prices could further slow new home construction in the region.
Calgary housing starts fall in November
(Calgary Herald, December 8, 2014)

It looks increasingly like the party is over for Toronto’s residential construction frenzy, while Calgary’s real estate market is taking a breather in the face of plummeting oil prices. Housing starts in Toronto fell 34 per cent in November, compared to the same month a year earlier, according to data from Canada Mortgage and Housing Corp. Meanwhile, StatsCan reported Monday that the value of building permits issued in the city fell 11 per cent in October, compared to a year earlier. Condo construction was particularly hit hard, with multi-family housing starts plummeting 46 per cent over the past 12 months. Toronto, Calgary Housing Markets Show Signs Of Slowdown (Huffington Post, December 8, 2014)

A post-recession housing boom, fuelled by record-low borrowing costs, has prompted some analysts to warn a bubble may be in the works. … The IMF saw signs of over valuation in single-family homes, especially associated with high-end buyers, but said tighter mortgage insurance rules, reduced affordability and the construction of multi-family units appeared to have contained price growth in other market segments. … “The balance of risks is modestly tilted to the downside for the Canadian economy,” the IMF said, pointing to the possibility of faster-than-expected tightening of global financial conditions and a further fall in oil prices.”…“Deeper downside risks to growth involve a combination of external shocks that are amplified by high household balance sheet vulnerabilities and a sharper-than-expected correction in house prices.” IMF can’t stop worrying about Canada’s so-called housing bubble (Financial Post, November 26, 2014)

Of course the only reason the correction didn’t occur years ago is that Canada’s banks received a bailout of “$114 billion in cash and loan support between September 2008 and August 2010. They were double-dipping in not only two but three separate support programs, one of them American.The Big Banks’ Big Secret (Canadian Centre for Policy Alternatives, April 30, 2012)

$114 billion only delayed the problem and made it larger.

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