Canada at risk of a housing bust, Goldman Sachs

18 May 2017


Skyline of Alberta in Canada, where demand for new homes fell due to collapse in oil prices. (Photo: Wikimedia Commons)

With too much home construction and overvalued houses, Canada faces a 30 percent chance of a housing bust in two years, reported HuffPost Canada citing a Goldman Sachs research note.

A “bust” occurs when inflation-adjusted prices falls by five percent or more, said the report, which looked at housing markets within the G10 economies, or countries using 10 of the world’s most commonly traded currencies.

Goldman Sachs said house prices are most overvalued in New Zealand, Sweden, Canada, Australia and Norway, with the first two countries having the highest risk of a housing bust at 35 to 40 percent.

Much like most of other counties in the study, Canada constructed too many new homes. The overbuilding, however, is seen not in the hottest markets of Canada – at Vancouver and Toronto – but mainly in Saskatchewan and Alberta, where demand for new homes fell following the oil price collapse.

“We would stress that in the case of Canada — a focus for many investors at the moment — there are important regional disparities to keep in mind,” said the report.

The New York-based bank noted that most of the countries at high risk of a housing bust are witnessing an explosion in consumer debt. Earlier this year, household debt in Canada hit a record high above 167 percent of disposable income.

But with the low interest rates, the debt burden has remained manageable so far.

“In general we do not expect imminent problems in G10 real estate markets, but current imbalances could exacerbate cyclical weakness down the road.”


This article was edited by Denise Djong.


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