Tuesday, February 16, 2010

Canada Takes the Gold in 'Return of the Housing Bubble'

WSJ reports:
Last Wednesday, a housing-price index for Canada's six biggest cities posted its seventh straight monthly gain, showing home prices in November are now back to their prerecession peak. Another broader measure shows the average home price in 2009 hitting a record.
So what's going on? Are real estate brokers taking hormone shots? Nope.

As you would expect, it's the Canadian government providing the blow for the new bubble:
The Department of Finance in 2008 said Canada Mortgage and Housing Corp. would limit amortizations to 35 years [down from 40 years] and offer loan insurance on only 95 percent of the loan value [down from 100 per cent].
Further, Prime Minister Stephen Harper has introduced a temporary tax credit for home renovations. He has also given a tax break to first-time home buyers and purchased mortgages from banks to encourage new lending.

Naturally, Finance Minister Jim Flaherty sees “no clear evidence” of a housing bubble.

Bank of Canada Governor Mark Carney, meanwhile, has also pledged to keep the key target interest rate at a record low 0.25 percent through at least June (unless inflation heats up).

The average five-year mortgage rate was 5.39 percent on Feb. 10. In May it was 5.25 percent, the lowest since 1951, according to Bank of Canada figures via Bloomberg.


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