Canada Sitting on “One of The Largest Housing Bubbles of All Time”: Analyst
The comments below are an edited and abridged synopsis of an article by Kenneth Chan
Housing market fundamentals in Canada continue falling, approaching levels that were unimaginable even a year ago.
This has led analyst Phillip Colmar to believe Canada is now “sitting on probably one of the largest housing bubbles of all time.”
Canada has home price-to-income ratios that are off the charts, and affordability that is very weak.
There was some stabilization after the Bank of Canada’s consecutive policy rate increases, but Colmar says the problem is rising bond yields, a worrying sign of the increasing probability of company defaults.
Canadian market conditions have been two decades in the making, with historically low interest rates for over ten years.
The “worst part for the housing bubble is when you have a credit bubble underneath it, and the amount of Canadian leverage into the system versus income is pretty astronomical,” said Colmar. Debt servicing has increased dramatically.
“If mortgage rates go higher or unemployment were to rise, when we hit the next recession then this thing does end up in a deleveraging cycle.”
Canada has the highest level of household debt amongst G7 countries, making the economy more vulnerable to any global economic crisis; household debt was about 80% of the size of the entire economy during the 2008 financial crisis (95% in 2010).
Mortgage interest payments grew by 12.6% from the fourth quarter of 2022 to the first quarter of 2023, which continues the escalating pattern experienced since early 2022 due to consecutive rate hikes. Mortgage interest payments were up almost 70% in the first quarter of 2023 compared to the first quarter of 2022.
There was $1.85 in credit market debt for every dollar of household disposable income in the first quarter of 2023. Like many other indicators, this figure has been increasing, too.