In contrast to Central and Eastern Canada, housing conditions in Western Canada remain very tight and are showing increased signs of speculation. When economic conditions are booming, it can also create the perfect breeding ground for speculative price bubbles to form. That's because in such an environment, housing market participants are at greater risk of developing a case of irrational exuberance, especially if they expect that such exorbitant price gains will continue indefinitely.
More Quotes from Craig Alexander:
Based on long-term factors, including demographics and income growth, the average annual increase in national home prices is likely to be around four per cent in the coming decade, so the recent high single- digit and low double-digit gains cannot persist indefinitely. But, the key issue is whether the adjustment to a more sustainable trend is gradual. The good news is that this is what appears to be happening in Central and Atlantic Canada.Craig Alexander
The odds clearly favor the Bank of Canada raising the overnight rate by a quarter point on May 24 to 4.25 percent.
Craig Alexander
Canada's housing markets remained robust in early 2006, despite slightly higher mortgage rates. However, the dominant theme lurking beneath the national average results is clear signs that speculation has picked up in Western Canada, while housing markets in Central Canada appear to be coming in for a soft-landing.
Craig Alexander
Given these divergent signals from the Bank of Canada and the Fed, look for the Canadian dollar to strengthen in the near term, trading decisively through 90 U. S. cents.
Craig Alexander
In addressing the matter of a speculative housing bubble, the more important question to answer is are these robust economic fundamentals in Vancouver strong enough to support such price gains Based on a number of indicators, we still don't think so.
Craig Alexander
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