This is what a housing bubble looks like - MoneySense

This is what a housing bubble looks like

In his daily newsletter this morning, “Breakfast With Dave”, eminent economist David Rosenberg asks the question many Canadians wish would just go away: Is the Canadian housing market in a bubble?

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In his daily newsletter this morning, “Breakfast With Dave”, eminent economist David Rosenberg asks the question many Canadians wish would just go away: Is the Canadian housing market in a bubble?

Homeowners who’ve seen the value of their abodes double in the last couple of years would likely argue no. Or at least pray that the answer is no.

Unfortunately for them, Rosenberg, the chief economist at Gluskin Sheff makes a few compelling arguments that we are in a bubble. (And don’t we all know what happens to bubbles sooner or later. Pop!)

Rosenberg’s first point is an obvious one. We are in a recession. Personal income in this country has dropped 1% in the last year and jobs are disappearing. Yet real estate is acting like it’s 2007 all over again: The average price of a home in this country has shot up 21% in the last year.

His second point comes from some models he ran comparing home prices to personal income and residential rent. After crunching the numbers, Rosenberg figures that housing values in Canada are 15% to 35% above where they should be to remain consistent with fundamentals. In other words, we are in a housing bubble.

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