Some economists warn Canada’s real estate bubble could pop

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VANCOUVER (NEWS1130) – Canada’s real estate bubble is in danger of bursting, according to a new report.

It shows home values are outpacing income levels in Saskatchewan, Newfoundland, and Quebec, but that’s also the case here on the West Coast.

Doug Porter with Bank of Montreal says the value of homes is growing faster than income levels across much of the country. “Last time that we saw this kind of extreme ratio between Vancouver prices and the rest of the country was in mid-1995. And almost from that point on, we did see Vancouver market have a tough time.”

The BMO warns there could be a major correction coming if prices continue to climb and interest rates stay at record low. The federal government is tightening up mortgage rules later this month to eliminate insurance on 35-year mortgages, making it harder for people to buy those really expensive homes.

“I think what we will see is sales starting to slow down right across the country. You could actually see prices flatten out, if not even dip a little bit.”

Porter also expects interest rates to climb to two per cent by the end of the year. He predicts another point and a half increase in 2012.

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