Canadian home prices have been soaring thanks to loose credit and a solid economy, though excessive demand in the sector may send home prices eventually collapsing similar to the U.S. bust a few years ago, experts say.
With mortgage loans under 3 percent, rising home prices suggest many Canadians are spending beyond their means, which serves as the building blocks for a collapse.
"What we are seeing is the irrational exuberance that was present in the U.S.," says David Madani, a former Bank of Canada analyst now with the consultancy Capital Economics, the Christian Science Monitor reports.
Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.
"It has all the symptoms of a disaster waiting to happen."
Canadian home prices have nearly doubled over the last decade to an average of about $373,000, the Monitor reports, adding that in cities such as Toronto and Vancouver, prices are up more than 10 percent year over year.
Considering the Canadian economy largely sidestepped the 2008 crisis and continues to grow, when monetary policy authorities do take steps to rein in growth by hiking benchmark interest rates, pain could ensue.
"If credit tightens tomorrow, the game is over," Ben Rabidoux, an analyst with the U.S. real estate market research firm M Hanson Advisors tells the newspaper.
"I think we will see a decade of stagnant returns and a stagnant economy."
Buyers can relax for now.
The Canada Mortgage and Housing Corp., the country's federal housing agency, says the central bank will likely hold benchmark lending rates at 1.0 percent for the rest of the year while mortgage rates will remain flat.
"The Bank of Canada has kept its target for the overnight interest rate at 1.0 percent since September 2010 and has indicated that it is likely to remain at 1.0 percent for 2012," the agency said in a recent report, according to Reuters.
Editor's Note: How You Lost $85,000 During the Last Decade. See the Numbers.
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