Household debt as a percentage of GDP has risen significantly in Canada over the last decade. At about 90% of GDP in 2009, it was near the OECD average. Owing to the lowering of interest rates and a still well functioning financial system, household indebtedness continued to rise during the recession, the first recession in Canada's history an expansion in real household credit. The household debt-to-income and debt-to-assets ratios remain at or near historical highs. Most of the increase in household credit has been in mortgage debt, helping to bring about a strong revival in housing market activity after a brief dip during the beginning of the crisis. Record-low mortgage rates are another factor behind the revival. Indeed, housing looks overpriced on the basis of both price-to-rent and price-to-income measuresBelow is a chart which pretty much sums up all you need to know about the Canadian housing bubble. Soaring home prices far outpacing income growth. Just like what happened in the US. The only question is when will the great Canadian housing bubble collapse?
Chart courtesy of Alexandre Pestov's 'The Elusive Canadian Housing Bubble', Summer 2010 edition, July 2010
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