Some of the valuations are worse than the US housing market at their peak and much of Canadian debt levels are worse from previous housing busts in 81 and 90. So what would trigger the popping of the bubble?
Some say that in order for housing to drop, there would need to be massive jobs lost and with the recent report of employment growth in Canada,(+69,000 jobs) that will not be happening anytime soon.
Housing activity accounts for 20% of Canadian GDP. The last time that occurred was during the last housing bubble in the early 90's.
And if we look at what sectors have rebounded from their pre 2008 levels, housing is up there with consumer and government spending.
Much of Canada's growth in jobs since 2008 is of the result of Government spending and housing related activities. Definitely unsustainable over the long term.
Many people believe rising interest rates, or tougher mortgage rules will pop the housing bubble. These will be contributing factors to popping it, but it won't be the main reason.
The unwinding of the housing bubble will be the same thing that wound it up in the first place: Consumer sentiment. Think back to 2005-2006. Interest rates were already low for quite some time. Jobs in Saskatoon were actually down year over year by 3,800 in the spring of 2006. Mortgage rules were not drastically changing at one single time. But consumer sentiment about real estate was ramping up. Through out the whole world, real estate was seen as the new dotcom boom without the bust. Bidding wars for homes erupted around the globe that launched house values skyward. People felt and in Saskatoon still feel that real estate is the best and safest investment ever.
But what most people fail to realize is that real estate is an asset that is highly leveraged. With more and more people getting into too much debt, sentiment is starting to shift that real estate is not what they are being told. Real estate bought at the wrong time is a huge drag on wealth. Just look south or to the dozens of other countries that are trying to live after burst housing busts. Or just find someone who bought at the wrong time in previous Canadian housing busts with crushing debt.
"So far this has not deterred homebuyers from paying high prices relative to their income. This optimism might be due to the expectation that house price gains would outweigh the additional costs of repaying larger mortgage loans. Some homebuyers may also simply not understand the size of the long-term burden of mortgage debt that they are taking on. But as and when homebuyers reassess these risks, prices could fall sharply."