Ed Devlin, interviewed today on BNN Bloomberg, offers his views on Canadian housing and why he thinks it is problematic, but not a bubble.  Good public policy can still prevent a sharp, disorderly price correction.

Canada’s housing market has risen because of excessive demand fueled by low mortgage rates and loose fiscal policy. Ottawa is in control of both. There is no need to increase taxes to overly micro manage the housing market. I was in Orange County California for a first row seat to the collapse of the US housing market in 2008. Canada’s current housing market is not a US-style bubble: 1. Credit underwriting is decent. No non-recourse “liar loans” 2. Canada does not have a large adjustable rate mortgage market as the US did and more importantly… 3. The Fed hiked the Fed Funds rate from 1% in 2004 to 5.25% in 2007 making adjustable mortgage rates too high for the borrowers… I would bet my life there is no 4% rate hike cycle coming any time soon from the BoC 4. The US massively over-built from 2002-2008, Canada has not done the same today, not yet … So, yes, housing prices look problematic and it is time to tighten mortgage credit modestly, but policy makers need to be careful to not cause what they are trying to prevent (a housing crash). The issue is that the Canadian economy is incredibly sensitive to changes in interest rates due to the large build up of debt.