Whispers from the Edge of the Rainforest: Bubble denier

Tuesday, December 3, 2013

Tues Post #2: 'We ain't got no stinkin housing bubble'

As Vancouver's average price hits a new record high and the International Monetary Fund casts it's eyes on Canada (declaring our's the most over-valued real estate in the world), is this cause for concern?

Not according to our new Bank of Canada Governor.

As reported in yesterday's Financial Post, BOC Governor Stephen Poloz says:

"Canada’s housing market is not in a bubble and not likely to suffer a sudden and sharp correction in prices..."

The central banker was testifying before the Senate banking committee on his latest economic outlook and used the testimony to pointedly disagree with a couple of forecasting organizations that weighed in this week on the Canadian situation — the Fitch Rating service that judged Canada’s housing market as 21% overpriced, and an OECD recommendation that he start raising interest rates in a year’s time.

The Fitch Rating service summarized our housing market this way (click on image to enlarge)…

The Fitch Ratings report concluded that in Canada "… a high level of employment and individual net worth tied to the value of the housing stock, a housing downturn could have serious consequences for the overall economy.”

But Poloz says 'poppycock'.

He believes the most likely scenario is a soft landing where home prices stabilize. although he acknowledged that an imbalance in the market and high household debt remain key risks.