Reassurance for Anyone Fearful of a Housing Bubble in Canada

For the last few years there has been significant concern over whether or not Canada could experience the same real estate crash the US had, as a result of a housing bubble. Concern has grown recently as our overall real estate market has continued to grow along with housing starts. One of the ways the Bank of Canada can protect our economy from a housing bubble is to increase interest rates, curbing the demand for real estate. The Bank of Canada just commented on the potential of a Canadian Housing Bubble and using interest rates to control it. As you'll see after reading the article below, the B of C's intention to keep interest rates where they are is great for anyone with a mortgage renewing in the upcoming months or who has a variable mortgage....

A Bank of Canada official called talks of a Canadian housing bubble premature in a speech in Edmonton Monday, adding higher interest rates are not the solution to cooling the current surge in housing demand and prices.

"If the bank were to raise interest rates to cool the housing market now - when inflation is expected to remain below target for the next year and a half - we would, in essence, be dousing the entire Canadian economy with cold water, just as it emerges from recession," said David Wolf, an advisor to Bank of Canada governor Mark Carney. "As a result, it would take longer for economic growth to return to potential and for inflation to get back to target."

The central bank's comments came on the heels of the CMHC's latest report on housing starts, which showed a 6.6 per cent jump in urban starts across Canada compared to November. They also follow federal finance minister Jim Flaherty's recent comments about introducing new rules to cool the housing market.

In his speech, Wolf said housing bubbles are usually caused by credit expansion as opposed to temporary factors like low interest rates and pent-up demand, and these factors cannot continue to sustain the high numbers of sales and prices seen in Canada over the past few months. Wolf also said the central bank is monitoring the housing market closely, adding it required "vigilance, not alarm."



If anyone would like a second opinion about a mortgage that's renewing or if you're thinking about taking advantage of the hot real estate market, feel free to give me a call.

Peter