Housing bubble is scary

The Canadian housing market is simply crazy right now. There is no other way to describe it.

Even if I tried, I don’t think I can put our housing situation into words in a way you will fully understand.

So, instead of me trying to describe just how scary this bubble is, take a look at the chart to the right.

It goes back to 1975, but if you were to look even further back, you would see Canadian and U.S. housing prices have always been somewhat in line with each other, right up until 2008.

Just like the Canadian and U.S. stock markets have kept roughly in line and our consumer debt levels have stayed on par with each other.

Then the 2008 global debt crisis happened.

During this crisis, the consumers of virtually every country around the world made some tough choices to reduce their debt load and get their personal balance sheets back to some reasonable debt-asset ratios. The exception is Canada. You see, the only thing Canadians seemed to take from the 2008 meltdown was the benefit of ultra-low interest rates and we decided to go shopping.

In addition to spending money on cars, vacations and other items we couldn’t afford, Canadians decided they were all entitled to live in bigger and more expensive homes.

When combined with the influx of foreign buyers, our housing market, and our consumer debt, has been skyrocketing ever since.

There has been plenty of debate over whether or not we have a real housing bubble here in Canada.

The accompanying chart speaks for itself.

Canadian home prices are simply crazy right now and the history of economics tell you things always revert back to their averages eventually. When will this bubble burst? Nobody knows for sure, but the tides are already turning in areas like Toronto where buyers are walking away from deals at closing or trying to renegotiate prices right now.

The longer a bubble grows before bursting, the larger it becomes and the worse things are when they eventually destabilize.

The timing is impossible to predict but Canadians should be on high alert.

Brett Millard is the owner of SPEIR Wealth Management in Kelowna. Reach him at brett@speirwealth.com.