Bank of Canada in its Financial System review  has indicated the market in Canada may be over priced by 10-30%.  The risk is related to a change in the economic conditions in Canada.  “Highly-indebted households would have [difficulty] servicing their debt if they were to face a sharp decline in their incomes or a sharp rise in interest rates,” said Governor Stephen Poloz in a press release. “This situation raises the risk that a shock to the economy could trigger a correction in house prices. The probability of this risk materializing is low, but if it did occur, the effect on the economy would be severe.”

At the recent Canadian Real Estate conference the mood was a tad more optimistic.  First there is different markets in Canada. The market is split between major urban centers (Toronto, Vancouver Calgary, Montreal) and secondary markets.  Prices in some secondary markets have been stabilizing or tending down for much of the year. Immigration is a major driver in major markets.  In the GTA over 100,000 people are moving into the market each year requiring 30-35,000 new homes.   Finally the consensus was that interest rates will move up but by on 50-100 basis points but that existing government policies on mortgage lending has reduced the risk to home owners.  It was also noted that Canadians pay down there mortgages on average in 19 years.  This is a very different situation to that of America where the collapse of the housing bubble in 2007 has changed the purchasing patterns of Americans.

Oil price drops is a doubled edged sword as it impacts Alberta and Saskatchewan with expected slower growth while it pumps money into consumers and business in Ontario and Quebec.