Is Canada in a housing bubble?

Despite frothy market conditions, the Canadian housing sector is not showing definitive signs of a bubble, according to the previous head of the Canada Mortgage and Housing Corporation.

“If demand is going up and supply is not, prices will go up, that’s not a bubble,” former CMHC chief and current Alberta Investment Management Corporation CEO Evan Siddall said in an interview with CTV. “So it’s a question of what the future brings and whether there will be supply and demand coming back into balance and that’s a crystal ball question.”

The national average home price grew by 18.2% annually to reach $716,585 in October, a surge that was disproportionately influenced by activity in Greater Vancouver and the Greater Toronto Area, data from the Canadian Real Estate Association showed.

Removing these two powerhouse markets from the equation cuts the October average by more than $155,000, CREA said.

Read more: Investors gobbling up properties in hot Canada market

Existing policies, including the Liberal administration’s pandemic stimulus, are major drivers of the current situation, Siddall said.

“It’s about much more the demand and supply response. So that again, is market factors including slow approvals – there’s a lack of coordination among municipal, provincial and federal governments and it’s hard for people to build houses,” Siddall said. “The other problem is low rates make housing more attractive. Mortgage insurance makes it further attractive.”

And while measures like the first-time home buyer incentive and the tax-free first home savings account are crucial components of an effective response to affordability woes, Siddall said that these won’t be sufficient.

“Let’s face it, that’s all government can really do on the supply side. It’s too much for a government to handle,” Siddall said. “We’re talking trillions of dollars in housing activity. It’s is a supply problem, but it’s not a supply problem the government can deal with on its own. It needs private sector support.”