Is Canada’s Housing Bubble Finally About to Pop?

Amid all the concern over banking troubles in Spain, elections in Greece, France, and Egypt, and the Federal Reserve’s policy meeting next week where expectations vary widely about what they may or may not do to support a weakening U.S. economy and a worsening recession/financial crisis in other parts of the world, it would appear that Canada’s housing bubble just might be veering toward its pin, at least according to a number of reports this week that have a distinctly early-2007 U.S. feel to them.

• June 11th - Toronto braces for a deflating condo bubble - Reuters
• June 12th - Is Toronto’s housing market cooling, bubbling, bursting or booming? - National Post
• June 13th - Canada’s housing market still outshines rest of world: Scotia - Financial Post
• June 14th - Canadian housing market headed for a correction, BoC says Vancouver Sun

Those last two are particularly scary since, whenever you have a bank with a rosy outlook while the central bank warns of a correction, the odds are pretty good that something bad is about to happen.

Whether or not recently lower prices in Canada’s hottest housing markets turn into something more than just a little dip in prices remains to be seen, however, based on the two curves in the chart to the right courtesy of Sober Look, it would appear that there is far more room to move down than up.

Moreover, with commodity prices tumbling lately - their sharpest sell-off since, um, 2008 -  Canada’s natural resource dependent economy may be undergoing some dramatic changes that are only beginning to filter through to the housing market.

Having visited Vancouver, Calgary, and Toronto in recent years, it’s clear that our neighbors to the north have had housing fever for some time now, many outlying areas in Calgary looking a lot like outlying areas of Los Angeles in 2005 and the condo craze in Vancouver and Toronto resembling that of Miami seven years ago.

According to the report by Scotia Bank, the world’s other once-thought-to-be-un-poppable housing bubble in Australia has seen prices fall more than six percent over the last year and Canada’s modest two percent decline is said to be a sign of “steady” markets.

I wouldn’t be too sure of that, particularly if the situation in Europe worsens and the U.S. economy continues its slowing growth track toward a possible recession this year.