Cracks appear in Canada's housing boom

As Vancouver prices slide, could Canadian equity markets feel the effects?

Bryan Borzykowski 26 September, 2016 | 5:00PM

Is Canada's residential real-estate market finally starting to crack? That's the question homeowners and equity investors are surely asking themselves after hearing about falling home sales in Vancouver. According to the Canadian Real Estate Association, home resales in the Greater Vancouver area dropped by nearly 19% month-over-month in August, while the average home price in the region fell by 18%. That was in large part due to the 15% tax on foreign home-buyers that came into effect that month. However, the same report found that national home sales fell by a 3.1% annualized rate in August compared to July.

Naturally, these numbers are worrying to anyone who's in the market for a home and to investors who might be imagining a U.S.-style, housing-fuelled recession in the near future. Whether we'll actually see a crash in both real estate and stocks, though, is still difficult to predict. That said, Eric Lascelles, chief economist with RBC Global Asset Management, says the market hasn't been this precarious since the global recession. "We think we're at an inflection point," he says.

By Lascelles' estimates, at the current interest rate, the housing market is overvalued by 35%. Some parts of the country are even more overheated than that. Despite the falling numbers in Vancouver -- a cooling that began in February -- prices in the area are up 26% year over year. According to Teranet's house price index, prices are up 15% in Toronto over the same time period. "That's a steep rate of price inclines," says Stephen Lingard, a portfolio manager with Franklin Templeton Solutions. "We have a bubble brewing."

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About Author

Bryan Borzykowski

Bryan Borzykowski  Bryan Borzykowski is a Toronto-based business and investments writer. He’s contributed to the New York Times, CNBC, BBC Capital, CNNMoney and several other publications. Bryan’s also written three personal finance books and appears regularly on CTV News.