No housing bubble, say BMO economists.
August 17, 2005 - Low mortgage rates are the prime factor behind the rapidly-rising cost of housing, but economists at BMO Financial Group say there is no housing bubble. While there have been large increases in housing prices, "this seems The commentary notes that the low level of mortgage payments as a share of income provides the strongest evidence that the current situation is not indicative of bubble conditions. "This measure shows that low mortgage rates are keeping housing very affordable, despite housing prices rising faster than income, " says Mr. Ferley. Even if mortgage rates rise another 200 basis points, as BMO projects, the ratio would still remain marginally below the historical average. BMO looked at housing prices in Toronto, Montreal, Calgary and Vancouver and concluded the greatest risk of "bubble market" conditions emerging is in Vancouver. Mr. Ferley predicts that rising interest rates this fall will ease the upward pressure on housing prices and eliminate the fear that low rates are providing too much stimulus to the housing market.
more a reflection of low mortgage rates and still attractive affordability rather than speculative activity," says Paul Ferley, assistant chief economist at BMO Financial Group.
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