Canadian home prices are now showing many of the signs of a classic bubble, according to a recent report from Bank of America Merrill Lynch.
Factoring in record low mortgage rates, the housing market nationwide is at least 10% overvalued, say Merril economists. More importantly, under more normalized interest rates, home prices would actually look about 25% overvalued based on current prices, they estimate.
“In our view, the housing market is one of the most vulnerable sectors to this weakening economic environment, showing classic signs of over valuation, speculation and over supply,” says the report. “We are not calling for an all out rout in the market — but caution is now decidedly warranted.”