The Canada bubble
So much for Canadian sobriety?
Recently the country’s chief bank regulator was in NYC to take a victory lap about successful bank regulation north of the border. Paul Krugman has argued that Canadian banks are superior to American banks because they are boring.
And yet a housing bubble is clearly inflating, and its cause — big household leverage — is familiar.
The latest news out of Vancouver, where the average price for a single detached home now exceeds $1 million, is that…
…prices have climbed 23.3% in just 12 months, and are now nearly 3% higher than they were before the housing market crashed.
But no one is worried according to Paul Kedrosky:
It’s okay, say local realtors and the like. Because of the economic rebound. And the Olympics. And the warm winter there. Vancouver is different.
Nor is the bubble limited to Olympic-site Vancouver, according to a previous article from Phred Dvorak in WSJ:
Dominic Carrasco first tried to sell his studio apartment [in Toronto] in January 2009. The only offers the 42-year-old massage therapist got were well below the 166,900 Canadian dollars he’d paid for it five years earlier.
Last month, Mr. Carrasco tried again. The condominium was snapped up by the woman in charge of posting the information to the real-estate listing site, for C$209,900, or US$196,003, 40% more than the highest bid last year.
The bubble has familiar causes as Simon White of Variant Perception told me in an e-mail recently:
…household debt to income in Canada is now more than in the US. All the usual metrics to gauge whether housing is overvalued, eg House Price/Income or House Price/Rent are at levels up to over 30% from their long-run average. These are normally consistent with an overpriced market that is due for a correction; the question is when, as often these things persist for much longer than most people dare to guess.
If Canada’s banks are behaving so responsibly, where are households getting so much leverage?