Property Bubbles On Bloomberg

The chart shows real house prices in US vs Canada from the period 1975-2016.  Taking a long time period is always good practice, as is inflation adjusting price series such as these.  The one caution I would remark on is setting your base period (i.e. where you rebase the indexes), as it can sometimes mislead.  But there is clearly something going on here, and Canadian house prices have moved materially higher than that of the United States.  Carlson notes in the article that it looks like a bubble - and a much bigger bubble than that which the US went through, and while the bursting of a bubble can be hard to predict Canadians should be on "avalanche alert". 

Now, for the second part of the ChartCritic - where we add our own chart to the mix.  I had a play around with a few different datasets, first the BIS real property price series, some national nominal property price indexes, and then finally the OECD housing market valuation indicators.  It's worth looking at valuation because it can give greater insight than price alone - if price surges 10 fold, but incomes surge 20 fold it's an entirely different conclusion than if you just look at prices surging 10 fold.  The chart I present shows combined price to rent and price to income ratio valuation indicators from the OECD database for the 3 countries in the commodity dollar bloc.  And the interesting thing is, besides all calling their currencies "dollars" and having a bigly part of their economy driven by commodities, they all have grossly overvalued housing markets.

Carlson's chart shows a long term picture of real house prices in America and Canada and the conclusion that Canada is in a housing bubble smacks you in the face.

Besides all having the word "dollar" in their currency and deriving significant income from commodities, the commodity dollar bloc countries have tremendously overvalued housing markets.  (note, the same indicator for America was at 102 in the latest reading) (also note the indicators show valuations vs history rather than absolute valuation levels - so we are comparing the degree of over/undervaluation, not relative value).

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Lorimer Wilson 1 year ago Contributor's comment

I live in Toronto and, yes, house prices are astronomical. It seems every house goes for over $1,000,000 and almost always OVER the asking price. The house next door went for $4 million and the 2 houses across the street went for $6.5 million and $9 million. These are not mansions, just big brick houses like all the others in the neighbourhood.

This article, B.I.S. Flags Canada for a Financial Crisis Next Year – Here’s Why (www.munknee.com/b-i-s-flags-canada-for-a-financial-crisis-next-year-heres-why/) states that:

>"Canada’s addiction to real estate speculation has driven Canadian consumers to record amounts of debt – $2 trillion dollars – of which a whopping 71.6% of the debt was mortgages, which Canadians have been piling into as they aggressively chased soaring real estate prices.

Also check out Toronto Housing Bubble: Average Selling Price Soars 28% y-o-y in February! (www.munknee.com/toronto-housing-bubble-average-selling-price-soars-28-y-o-y-in-february/). It is a few months out of date but prices have only gone UP month after month in a similar fashion since then.

Every month we expect the bubble to burst but it just keeps going!