By: Larry MacDonald

The Canadian housing market is in a bubble according to Gluskin Sheff economist David Rosenberg’s report released today under the title Special Report — Is the Canadian Housing Market in a Bubble? It confirms the concerns I raised in an October post entitled: Housing Bubble Part Deux? And then some. Here are the highlights from Rosenberg’s report:

• average Canadian home prices up more than 20% over past year, to a record high last month

• yet rest of economy remains in dumps: real GDP (-3.2%), Employment (-1.5%), Retail sales (-3.3%), Personal income (-0.8%)

• and U.S. home prices still down 30% from peak

• Canadian homeownership rate, at 68.4%, is highest in nearly four decades (and higher than current U.S. ratio)

• Home-price-to-income and home-price-to-rent ratios are “2-3 standard deviation events” (see chart below)

• residential mortgage balances have risen 7% over past year

• mortgage debt relative to Canadian household incomes just moved above 70% for the first time ever (from just over 65% a year ago)

• all of the mortgage issuance has been securitized as NHA-insured product, which has ballooned by nearly 40% (chartered bank mortgage holdings have decline on their balance sheets)

• boomlet originated in Canadian government’s move during financial crisis to head off a housing market collapsing via the Insured Mortgage Purchase Program

• 5% down-payment for a home, insured mortgage with a 35-year amortization, along with record-low mortgage rates, have dramatically improved the financing costs in residential real estate

• if and when bubble pops won’t be as bad as U.S. because mortgages are insured by Canada Mortgage and Housing Corporation (taxpayers will pick up tab) and unlike U.S., lenders have recourse if homeowners default on their debt (i.e. in terms of repossessing assets).