Canadian Mortgage Insurer Tells US Hedge Funds Why Canada’s Housing Bubble Is Immortal. Hilarity Ensues
Home prices in Canada’s two largest metro areas have been red-hot for years. In May, the average selling price for all types of homes in the Greater Toronto Area jumped 11% from a year ago to C$649,600 on a 6% increase in sales. In Greater Vancouver, the composite benchmark price for all homes rose 9.4% to C$684,400 on a 23% increase in sales.
But these overall price changes paper over what’s happening with detached homes,whose prices soared 14% to C$1,104,900 in Vancouver and 18% to C$1,115,120 in Toronto.
Already last summer, Fitch fretted about overvaluation in housing and the high debt burden relative to disposable income of Canadian households. At about the same time, seven in ten mortgage lenders expressed concerns in a poll by FICO that home prices were in a “bubble” that could burst any time. Last October, the Bank of Canada thought that the housing bubble could threaten Canada’s financial stability.
This January, Deutsche Bank estimated that homes in Canada were 63% overvalued. In March, the IMF warned that high household debt levels and the “overheated housing market” are two risks it would “need to keep an eye on.” In April, the Economistdetermined that home prices in Canada were overvalued by 35% when compared to incomes, and 89% when compared to rents.
Now hedge funds are trying to engineer ways to short the Canadian housing market one way or the other, because surely this would be another “short of a lifetime.”
Maybe they’re right: beyond Toronto and Vancouver, the housing market is already drifting lower.
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