Unlike the U.S., Canada never got into the risky business of subprime lending. But Canada, like the U.S., is offering housing incentives to stimulate is economy in the form of tax credits and historically low mortgage rates. The strategy seems to be working: home sale volumes are up 70% in January 2010, compared to a year earlier. Average home prices in Canada are up 23% over the same period. But is this too much of a good thing?
The Wall Street Journal cites Canadian economists who say home prices are rising faster than other economic indicators, including personal wealth and employment. Economist David Rosenberg says "This is exactly what happened in the U.S., when affordability had moved way out of whack with prices." Another red flag is mortgage interest rates. Canadian banks typically reset adjustable-rate mortgages every few years. People buying homes now at low rates will see increases soon.
Still, the Wall Street Journal reports that there are bubble skeptics who aren't seeing red flags like looser lending standards or a dramatic increase in land prices. For now, Canada's central back and finance ministry say there's no cause for concern.