Alleged signs of a bubble might actually be indicators of “healthy outcomes within existing conditions”, argues an economist
A national mortgage industry group of more than 11,000 professionals maintained that no signs of a Canadian housing bubble currently exist, and that any federal changes to the current lending environment would only upend the market and turn the fear of a crash into a self-fulfilling prophecy.
In a Financial Post report by Garry Marr, Mortgage Professionals Canada chief economist Will Dunning stated that the mutterings of a bubble that has yet to materialize have repeatedly circulated through the industry for 8 years now.
“Those comments have generally assumed that rapid growth in house prices (or a rising ratio of house prices versus incomes or of house prices versus rents) is sufficient evidence of a bubble. To the contrary, these supposedly strong indicators are not definitive proof. They may actually represent healthy outcomes within existing conditions,” Dunning explained.
Among the indicators that would signify a bubble in Canada’s housing sector are “excessive activity” triggered by expectations and speculations, and prices radically different from those that should naturally stem from the economic fundamentals—indicators, Dunning argued, that simply do not exist yet.
“There is a risk that changes in policies of lenders or mortgage insurers that reduce access to mortgages could cause an unnecessary drop in housing demand and housing prices, and bring consequent economic damage,” the economist said.
“Given the importance of housing activity to the national economy (especially since investment in energy projects is no longer a driver of growth), we are hopeful that any changes will be based on a careful consideration of the tradeoff between caution in the mortgage market versus overall economic growth,” he added.
May 2016 saw composite indexes for Canada’s most in-demand residential real estate markets rise by nearly 30 per cent (in Vancouver) and by around 16 per cent (in Toronto).
Related Stories:
Household debt responsible for housing bubble - Capital Economics
Massive gains in hottest markets mask housing slump everywhere else
In a Financial Post report by Garry Marr, Mortgage Professionals Canada chief economist Will Dunning stated that the mutterings of a bubble that has yet to materialize have repeatedly circulated through the industry for 8 years now.
“Those comments have generally assumed that rapid growth in house prices (or a rising ratio of house prices versus incomes or of house prices versus rents) is sufficient evidence of a bubble. To the contrary, these supposedly strong indicators are not definitive proof. They may actually represent healthy outcomes within existing conditions,” Dunning explained.
Among the indicators that would signify a bubble in Canada’s housing sector are “excessive activity” triggered by expectations and speculations, and prices radically different from those that should naturally stem from the economic fundamentals—indicators, Dunning argued, that simply do not exist yet.
“There is a risk that changes in policies of lenders or mortgage insurers that reduce access to mortgages could cause an unnecessary drop in housing demand and housing prices, and bring consequent economic damage,” the economist said.
“Given the importance of housing activity to the national economy (especially since investment in energy projects is no longer a driver of growth), we are hopeful that any changes will be based on a careful consideration of the tradeoff between caution in the mortgage market versus overall economic growth,” he added.
May 2016 saw composite indexes for Canada’s most in-demand residential real estate markets rise by nearly 30 per cent (in Vancouver) and by around 16 per cent (in Toronto).
Related Stories:
Household debt responsible for housing bubble - Capital Economics
Massive gains in hottest markets mask housing slump everywhere else
