Bubbles

Houses Built on Sand: The Coming Crisis in Real Estate

When the bubble bursts, there will be no shortage of politicians to blame

The Great Canadian Real Estate Bubble may be about to burst. When it does, the results won’t be pretty.

But it’s not as if we didn’t know it was coming. For years, this bubble has been carefully nurtured by governments desperate for economic growth, realtors who will do anything for a sale and financial institutions happy to plow billions into housing, knowing Ottawa would always backstop their losses.

And as more and more people, particularly in Vancouver and Toronto, find themselves shut out of the housing market, those who had the good fortune to get in early sit in self-satisfied silence, content in the knowledge that their modest bungalows have turned them into millionaires — on paper, at least.

Of course, no government agency is going to call this situation a “bubble”, with all its connotations of folly and irrational exuberance — but you may have noticed an increasing note of alarm in recent official dispatches on the state of Canada’s housing market.

The Canada Mortgage and Housing Corp. (CMHC) reported this week growing signs of “problematic conditions” in the housing market, particularly in Vancouver and Toronto, where there is “a combination of price acceleration and over-valuation.” An overheated price climate was a problem in nine cities; over-building was a problem in seven.

More here…

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