Canada sitting on a largest housing bubble in the World.

According to one analyst, there is a significant possibility that the Canadian home market may collapse.

According to Phillip Colmar, partner at Global Strategist at MRB Partners, many Canadians are in a perilous situation should mortgage rates continue to climb, which is inevitable. This is because many have accumulated more debt than they can afford.

Canadian housing market
Canadian housing

He stated that Canada is most likely home to the biggest housing bubble in history.

Colmar stated that for a number of reasons, the Bank of Canada’s monetary policy has provided easy money for two decades, which has contributed to Canada’s inflated property prices. He now sees a danger that mortgage rates would increase if Canadian bond yields are driven up.

The worst case scenario for a housing bubble, according to Colmar, is when a credit bubble is present below it.

The ratio of Canadian indebtedness to incomes is “pretty astronomical,” and debt servicing has increased significantly.

Colmar said he thinks the housing market will eventually collapse, despite the Canadian banks’ best efforts to prevent it.

“There is definitely a risk here that this thing does end up in a deleveraging cycle,” he said. “If mortgage rates go higher, unemployment were to rise, or we hit the next recession, then these things do end up in a deleveraging cycle.”

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Not only did Canada lend cheap money, but Canada has had some disastrous policies on foreign investment and terrible immigration regulations. Inviting people into the country without having infrastructure supporting the population growth shows as a total blunder of Canadian government.

Now that the train has left the station with affordable housing and any hope of normalizing,, the federal government is trying to put bandaids on this huge problem waiting to burst any moment. According to the person currently in charge of resolving Canada’s housing issue, the federal government is considering placing a limit on the number of international students to relieve pressure on the housing market.

As the Liberal cabinet assembled in Charlottetown on Monday, federal Housing, Infrastructure and Communities Minister Sean Fraser told reporters, “I think that’s one of the options that we ought to consider.”

This might be a good opportunity not only for housing market to release some pressure but also for homegrown students to finally have a spot on Canadian schools instead of going to US and paying double the amount.

According to government statistics, more than 800,000 foreign students studied in Canada last year.

Prior to last month’s cabinet reshuffle, Fraser served as the minister of immigration. He said he now hopes to meet with post-secondary schools to discuss how to make it simpler for students to locate housing in a competitive rental market.

Canadian immigration
Population of Canada

One of the key objectives of Prime Minister Justin Trudeau’s new cabinet as it gathers for the customary retreat before Parliament reconvenes next month is to address the housing problem.

READ MORE: Vancouver is at rental price all time high

The Canada Mortgage and Housing Corp. (CMHC) estimates that in order to address housing affordability, Canada must construct 5.8 million new houses by 2030, including two million rental units.

Something that will never happen when we see the rate of newly build subdivisions go up in flames lately. Almost every week there is a subdivision fire in the GTA, something that was unheard off before the mortgage rates went up. What is going on here? While Canada is in dire need of more houses, builders seem to care about the numbers and profit only. Is this failure to regulate construction market in Canada by the government? Perhaps.

More sellers, less buyers

According to RBC analysts Robert Hogue and Rachel Battaglia, new listings increased by 5.6% in July compared to the previous month, a rise of 24% since April, reversing falls earlier in the year.

The hike in new listings is the fastest increase outside of the epidemic and signals a change in mood, according to Desjardins analyst Marc Desormeaux, even if it won’t be obvious for a few months whether the surge is caused by speculators timing the markets or homeowners selling to avoid rising mortgage rates.

In certain markets, the growth was noticeable. Saguenay, Quebec, had a more than 28% increase in listings, Kitchener-Waterloo saw a 21% increase, and London, Ontario, saw an almost 20% increase, however RBC notes that these gains are coming from extraordinarily low levels.

Buyers are leaving the market at the same time.

Home sales nationally fell 0.7% in July compared to the previous month, the first drop in six months, as the Bank of Canada resumed raising interest rates, putting a stop to the housing market’s spring comeback. Potential house buyers are holding off since the average five-year fixed mortgage rate is at a post-financial crisis high of 5.84 percent, according to Capital Economics. The typical variable rate is close to 7%.

While there is no change in sight and no policies in place that could improve Canadian housing market, Canadians are struggling on both fronts. Canadians who rent are struggling to pay those astronomical prices and property owners struggle paying higher rate mortgages.

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