David Rosenberg - "Is the Canadian housing market in a bubble? It sure looks that way."

More and more mainstream commentators are declaring the Canadian housing market very significantly overvalued, and it is now commonplace to see the MSM use the term ‘bubble’ to describe it. -vreaa

David Rosenberg (Previously of BMO and Merrill Lynch, now at Gluskin Sheff + Associates) has been a sensible and moderate voice over the last decade, and is never moved to sensationalism. Here are extracts from an article by Rosenberg G&M 11 Dec 2009 -

“Is the Canadian housing market in a bubble? It sure looks that way… Looking at Canadian home prices in relation to personal incomes or residential rent, what we have found is that housing values are anywhere between 15 per cent and 35 per cent above levels we would label as being consistent with the fundamentals. If being 15-per-cent to 35-per-cent overvalued isn’t a bubble, then it’s the next closest thing.”

[UPDATE: In the Breakfast with Dave release from gluskinsheff.com 10 Dec 2009, Dave adds "We are talking about 2-3 standard deviation events here in terms of the parabolic move in Canadian home prices from their lows."]

“You can’t have a home price bubble without a dramatic credit expansion. Over the past year, residential mortgage balances have risen 7 per cent, which …in the context of deflating personal incomes, is huge. ..Mortgage debt relative to Canadian household incomes just moved above 70 per cent for the very first time ever from just over 65 per cent a year ago.”

“What is fascinating is that mortgages on the books of the chartered banks have actually declined over the last 12 months, while the issuance of securitized mortgage products has ballooned by nearly 40 per cent and 100 per cent of them been insured by the government (over the past two years, 90 per cent were insured).”