David Rosenberg says Canada’s housing market in a ‘huge bubble’
Derek Decloet
other
Home price gains don’t make sense when the labour market is so damaged from the COVID-19 pandemic, David Rosenberg says. Photo by Getty Images/iStockphoto
Canada’s housing market is in a “huge bubble” after months of runaway price gains, according to economist David Rosenberg, who was bearish on U.S. real estate before it crashed nearly 15 years ago.
Homes sold in the Toronto region topped $1 million (US$792,000) on average for the first time last month, with some suburbs and smaller cities recording price increases of 20 per cent or more from February 2020. On Vancouver’s west side, detached homes sold for a median price of $3.3 million in the first two months of the year.
“This might be one of the biggest bubbles of all time,” Rosenberg, founder of Rosenberg Research & Associates in Toronto, said in an interview on BNN Bloomberg Television. “Of course it’s been predicated on where mortgage rates are.”
The price gains don’t make sense when the labour market is so damaged from the COVID-19 pandemic, he said. “We have a situation where home prices are up 18 per cent year-over-year with practically no wage growth,” Rosenberg said.
Canada did not experience a widespread housing slump similar to the one the U.S. endured in the 2007-2008 period — a slump Rosenberg predicted when he was at Merrill Lynch. Today, Canadian home prices are about 40 per cent higher than in the U.S., adjusted for currency, according to Bank of Montreal.
The recent gain caught the attention of policy makers, including the Bank of Canada, which said housing activity “has been much stronger than expected” in a rate policy statement Wednesday. It held its key short-term rate at 0.25 per cent.
With an unemployment rate of 9.4 per cent in January, the central bank is right not to worry about inflation, Rosenberg said. Statistics Canada reports February jobs data on Friday.
“We have an unemployment level in this country that’s higher than it was at the peak of the last two recessions,” he said. “So we still have a very deep, I would say, deflationary hole in the labor market. You can have all the commodity strength in the world. If you don’t have strength in the labor market, you’re not going to get any inflationary impulse.”
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