Housing

Where The Housing Bubble Lives On

In Canada! Right next to us! After our housing bubble led to a global economic crisis!

Anecdote:

Sure, the pool slide is awesome. But would you pay $2.55 million to live here?

hide captionSure, the pool slide is awesome. But would you pay $2.55 million to live here?

martyhomes.com

2466 WEST 14TH AVE., VANCOUVER

ASKING PRICE $1,895,000

SELLING PRICE $2.55-million

PREVIOUS SELLING PRICE $531,000 (1996)

DAYS ON THE MARKET eleven

- from the Globe and Mail, via Kedrosky. Note: One Canadian dollar is worth roughly one U.S. dollar.

Data:

House prices have risen to almost 5.5 times disposable income per worker, well above the long-term historical average of 3.5. ...

...home prices rose 8.8% in February from the year before ... more than double the average price of a home in 1999 ...

The debt-to-disposable-income ratio for Canadian households rose to 148.9% last fall ... surpassing American borrowing ... the amount of home-equity loans has risen as much as 170% in the past decade...

- from the WSJ

Analysis:

Since the Bank of Canada has been keeping the interest rate artificially low — below what it would be sitting at if the rate were determined by market forces, instead of government bureaucrats — the housing market is on fire and household debt levels are skyrocketing. ...

Canadian household debt levels are now higher than they are in the United States; and many economists are worried that if house prices continue to rise faster than household income, prices could start falling sharply. ...

If the market does collapse, Canadian taxpayers potentially could be worse off than their American counterparts because risk is highly concentrated with the Canadian government. The CMHC [Canada's version of Fannie and Freddie] controls roughly 70% of the mortgage insurance market ...

-from the National Post

Caveats:

1. There's no subprime loan market in Canada.

2. Mortgages in Canada are recourse loans, and the country's default rate is historically much lower than the rate in the U.S.

3. Canadian real-estate agents say an influx of Chinese buyers is driving up home prices. (Anti-caveat: There's always a story to explain why a bubble isn't a bubble.)

More from Planet Money:

On recourse and non-recourse loans: "When Borrowers Don't Pay, Should The Bank Take Everything?"

On the price-to-rent ratio: "Should You Rent Or Buy?"

On the U.S. housing boom and bust: "The Giant Pool Of Money"

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