Canada’s housing market near ‘extreme bubble,’ says former Lehman Brothers trader

Jared Dillian

Jared Dillian is a US based-financial analyst

Jared Dillian a former Lehman Brothers executive and currently a US-based financial analyst warns that the Canadian real estate market is on the verge of a massive bubble, citing a struggling Canadian economy and high debt to income ratios.

“The average home price in all of Canada is over $500,000 and this is with the average income at $40,000,” Dillian told Mauldin Economics, a publisher for investment resources. “Debt to disposable income for consumers is 165 per cent which is much higher than it was in the U.S. at the top of our housing bubble.”

Dillian’s numbers match the facts. Statistics from The Canadian Real Estate Association (CREA) show the average Canadian home price was $480,743 for July 2016 up from $437,430 the year before. And the latest data from Statistics Canada shows the average Canadian employee makes just over $49,000 a year.

Dillian said while there’s a perception high home prices are being driven by off-shore money, including Chinese foreign investors, this only represents about 10 per cent of the activity in Vancouver and Toronto.

“A lot of it really is Canadian citizens who are stretching to buy homes in the low seven figures,” he said “The levels of debt are very, very high and it’s all on the (Canada Mortgage and Housing Corporation) balance sheet.”

Dillian also warned that the Canadian dollar, reeling from low oil prices, could fall to $1.60 or $1.70 against the US dollar.

The warning from Dillian, who worked for the financial services firm Lehman Brothers before it went bankrupt in 2008, comes on the heels of other warnings, including a June report from research firm Capital Economics that blamed increasing debt and high-risk mortgages for rising real estate.

Meanwhile an RBC report says housing affordability in Vancouver had its biggest drop in 26 years during the first half of the year, but signs of cooling are beginning to show up there, and in Toronto as well.  – CINEWS

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