Canada’s housing market is more like a balloon than a bubble, maintains BMO Capital Markets in a recent report.
While bubbles always burst, a balloon often deflates slowly in the absence of a “pin”.
In most regions then, where valuations are just moderately high, the air should seep out slowly, as rising incomes catch up with higher prices, allowing valuations to normalize before interest rates do.
What would constitute a balloon-bursting pin? If interest rates were to spike by about four percentage points, for instance, the affordability of homes would quickly drop. Same with a severe recession.