Paul Viera at The Wall Street Journal looks into the red hot housing market in Canada and why some economists are concerned. (WSJ)
- What’s causing the boom? The usual suspects are at play. Just like in the U.S. much of the housing boom is being led by buyers looking for more space, historically low-interest rates, and millennials looking to become homeowners.
- Boom unlike the others. Canada is currently outpacing other similar countries. “nominal house prices in Canada rose at an annual rate of about 16% in the fourth quarter from the previous three-month period, outpacing the U.S., the U.K. and elsewhere.”
- Big spenders. Governments around the world have written some big checks to counter the damage from restrictions in place amid the pandemic. However, Canada has gone above and beyond, “with spending that accounted for roughly 19% of its total economic output. Government outlays during the pandemic helped lift after-tax household income last year by 10%, versus 2019”
Just like in America, there is this belief that rising home prices are good for the economy. This is of course true if you are a homeowner. However, if you are a would-be homebuyer rising prices could price you out of the market.
It’s not just would-be homebuyers who can be hurt by a too hot housing market. RBC senior economist Robert Hogue in a new report says (Yahoo Finance)
“…there are a number of reasons policymakers should pour cold water on overheating housing markets. These include growing wealth inequality, capital being choked off from more productive parts of the economy, and the threat of destabilization resulting from a major correction.”
This is why rising rates in the US are probably the best thing for housing and the economy overall. Obviously, things are hot with double-digit price appreciation, but things aren’t so hot that we will end up getting burned later.