The Canadian property bubble is now receiving some international attention. Bloomberg Economics ranked housing bubbles across the OECD. Second on that list is Canada, which came in just a few points under New Zealand, the king of froth.
Global Property Bubbles Are Synchronizing
Countries that made headlines for frothy home prices recently, were the largest bubbles. Topping the list is New Zealand (#1), Canada (#2), and Sweden (#3). The UK (#5) and the US (#7) also managed to rank in the top ten. Don’t just dismiss it as “everything is a bubble” either.
Home prices have increased everywhere, and affordability is getting tough across the globe. However, the gap from the top of the list to the fifth largest is very large. The difference in price-to-rent from New Zealand’s top spot to Canada’s second, is a drop of 6.9 points. The drop from Canada to the UK (#5) is 52.2 points though, which is 34% more affordable.Everywhere is getting more difficult to afford shelter. The biggest bubbles are a totally different animal though.
Bloomberg Global Housing Bubble Ranking
Source: Bloomberg Economics.
The Canadian Property Bubble Is The Second Largest In The OECD
Canada produced some top-notch froth according to the agency’s research. The price-to-rent ratio (204.2%), and price-to-income (153.2%) are the second largest in the index. Even though the country is second, real price growth (8.7%) for the past year was the fifth largest. Though the country has had persistent high price growth for the past five years. This has allowed the gap to grow much bigger than just a few years of shock.
The report author warns synchronization is occurring, which increases risk. He attributes higher prices to low interest rates, stimulus, and a lack of supply. Psychological factors such as savings and the hope of an economic boom are also playing a role.
In this case, buyers are anticipating these factors will cause more pain later. That allows them to justify pain today, because the next person will experience more. That’s basically the definition of a bubble.
The report warns these markets will be put to the test when rates rise. Even though the increase is expected to be small and gradual, it can still have a big impact.
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