Is Canada's housing bubble about to burst?

I know I'm nearly alone in my view that Canada's housing market is in a huge bubble, which will soon burst, just like the American housing market did two years ago. I'll leave the details of my argument to another time, but for the moment, let me point readers to a press release I recently received, from Greater Homes, the people selling the Glen Arbour subdivision in Hammond's Plains, a suburb of Halifax.

People that tour our model homes at the Knolls of Glen Arbour pretty much always make the same comments... WOW, this is a lot bigger than it looks! Or... Who is your interior decorator! Or... I will buy one when I win the lottery! 


Let me address each one of these comments one at a time. 1.) Yes our homes are bigger than they look! They were designed to have minimal impact on their natural surroundings and to maximize their interior space through an open floor plan concept. 2.) If you like the model home finishes we will hook you up with our interior designer. It's one of the perks of buying in our project. 3.) Our houses are not expensive! If you compare apples to apples you are going to see that we offer a unbeatable deal. The surrounding communities are not even close to being comparable and have much less to offer in terms of lifestyle and quality. You get what you pay for in life and this is no exception. Another way to look at this equation is to analyze what this will cost you each month versus what the total purchase price is. Currently if your credit score is above 600 you could qualify for a variable 1.75% interest rate over a 35 year amortization which would bring your monthly mortgage payment on this particular property to $1,273 per month. This is very affordable considering that the market rent for this particular home is $2,200 per month. On top of the low mortgage payment our property values have already increased by $30,000 so far this year and are projected to increase by at least another 30k by year's end. At the moment interest rates are incredibly low and you can still purchase a property with either 5% down or in some cases even 0% down. This will all change very soon! So the more you talk yourself out of making a purchasing decision the more it will cost you later. So even if you did win the lottery it makes more economical sense to use the banks money to leverage your buying power than it would be to tie it all up in one property that you may not live in for the rest of your life. Not very many people left these days that stay in one place longer than 7 years.


So maybe your credit score is below 600 and currently you do not qualify on paper for a bank mortgage. Our lease to own program gives you 1-3 years to get all of your finances in order all while accruing equity by locking in the purchase price. All of our homes come with unfinished full walk-out basements which can be custom finished to suit your lifestyle and paid for later through the mortgage. We still have several that are in the final stages of construction where you can pick out all of your interior finishes. As an added incentive to purchase sooner rather than later we will hold your first years rent back to use towards a down payment or discount the purchase price. In addition you will NOT have to pay HST and during the first year you will NOT have to pay property taxes. So essentially you could live in this new luxury home free during the first year. Do you know anybody that can beat this lease to own deal? I know I can't find anyone in Nova Scotia who can! The only catch is that you need to have the annual income to qualify for your eventual mortgage, be able to afford the monthly rent of $1,800 to $2,000 per month and be able to come up with a 5% deposit. Think of the deposit as your good faith effort to show that you intend to purchase. You get it back anyway when you do.


This has all the indicators of a bubble at the bursting point. "Our property values have already increased by $30,000 so far this year and are projected to increase by at least another 30k by year's end"--- but we're not going to hold onto the property for another six months and make lots more money, because we're an anti-capitalist real estate company, and need to sell these houses now, quickly, because otherwise we might make more money, and that'd be bad.

And you don't want to be tying up your money in your new house, because you're going to be flipping it in a few years and getting an even bigger house! So, just figure out the financing, and don't worry your pretty little head that anything could possibly go wrong. Homeowners never end up upside-down, owing more that the value of their house, because Canadian banks are strong, the tar sands are deep, and Canadians have fine, fine accents. Just not possible here.

I could go on, but you get the point.