Did the Canadian housing bubble burst?

Some economists are proclaiming that the Canadian housing bubble has burst. Housing markets have indeed slowed considerably since their peak in February and March, but, unfortunately, economic bubbles are notoriously hard to identify and are often observed only after they burst.

What is a housing bubble?

A housing bubble happens when the increase in real estate prices is fuelled by demand and not the economy. House prices go up, but the increase can’t be explained by logical reasons, like demographic changes, interest rates or job creation.

What happens if a bubble bursts?

This could lead to several negative consequences, such as increased debt, bankruptcies, reduced access to housing and a decline in economic activity. However, it’s difficult to predict the precise consequences of a bubble bursting. In fact, it can be difficult to tell whether you’re actually in a bubble until it bursts.

How do you know if a property market is a bubble?

Usually, the first sign of a bubble is an increase in demand, and soon this is coupled with a dwindling supply of properties. It can take a long time before the supply increases again. All the while, speculators and investors are continuously pumping money (bidding) into the market, increasing demand even further.