Housing Pause

Canada's house prices are up by 5.39%, year over year.   In Toronto, prices are up 8.75% in 12 months.  In Vancouver they are up 9.66% in the same period.  The reported inflation rate in Canada over the last year was about 1%. 

Canadians are now carrying about 165% of their income in debt.  Most of this is mortgage and/or student and /or new car debt, and because of this, many commentators have noted that this is "good debt", in the sense that it is backed by tangible assets like an education that can generate a stream of income, or a house or a car.  In the long run this makes sense.  In the short run, this is a potentially catastrophic situation.   

Canada is officially in recession.  The recession has so far been mild, but with the general collapse in commodity prices worldwide, this risks become a serious recession quite quickly.  A higher unemployment rate would significantly strain the ability of average Canadians to finance their debt.

More than that, many neutral experts, such as The Economist magazine, which have been predicting that Canada has a significant real estate bubble for years.  The recent reductions in Canada central bank rate have likely contributed to the most recent spike in house prices and consumer credit - if the bubble initially formed during the six years when money was virtually free, presumably it got bigger when money became even freer.

In the long run, all will be well.  In the last serious housing bubble, however, prices in Toronto dropped every year for six years, from 1990 - 1996, for a total drop of about 30%.  If Canadians experience a recession like the early 1990's recession again, it is highly likely that their creditors will not wait for the long run to get paid.  Falling employment will stretch the ability of many people to carry debt, and falling asset prices will destroy their ability to just liquidate and set themselves free. They will sell anyway, and prices will fall in a once in a generation fire sale.

If you own a house, you should consider selling, grabbing ll that nice equity, and renting for a few years before buying again. It is never a bad idea to take your gains, and sit tight while you plan your next move.