Bubble watchers set to eye Canadian housing data

Bank of Canada policy makers are weighing whether to raise interest rates over the next few months, so you can bet they’ll be looking to any drop of news from the housing market to help guide their decisions.

According to data released last week by the Canadian Real Estate Association, the average cost of a Vancouver home is still more than $761,000, higher than anywhere else in the country. However, it was 3.1-per-cent lower in March than in the same month last year, and sales activity is also slowing. Meanwhile, Toronto is still gaining momentum, fuelling more talk of a bubble, with average prices in the country’s largest city soaring more than 10 per cent last month, to about $504,000.

The opposing directions of the two cities have resulted in a slightly lower country-wide average price, easing concerns about a U.S.-style crash. How this yin-and-yang plays out over the coming months will do much to determine whether Mr. Carney (or regulatory authorities) step in to try and engineer a “soft landing” for the housing market. Mr. Carney warned again last week that the use of home-equity lines of credit exploded over the past decade as prices rose, suggesting that if prices were to drop sharply, millions of families would almost overnight lose the confidence — and capacity — to keep spending.

Even as rising rates would likely mean lower home prices, the hope among economists pushing for hikes is that a small rate increase or two over the next six or eight months would cool the market without crippling it, and would nudge borrowers to rein in their spending, but slowly and gradually enough that the domestic demand driving growth doesn’t fall off a cliff.

Source: The Globe and Mail

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