According to the US Federal Reserve’s “Exuberance Index”, Canada is matched only by Germany in the “frothiness” of our real estate prices. According to a recent article in Better Dwelling, an online real estate commentary, Canada now has the second longest run of real estate price increases in the world, with six years since any significant correction.
And although Germany’s run is slightly longer, Canada’s run-up in prices has been much steeper. According to the Reserve, from 2005 Canada’s real estate prices have increased by an average of 173%; for Germany the figure is only 74%.
The conventional wisdom is that the longer a bubble continues, the harder the correction will be when it finally arrives. For Canada the result could be a tsunami of mortgage defaults and foreclosure. More subtly, any such correction would also rob businesses of a last-resort source of capital – available equity in the home of the business owner – that often allows businesses to survive business reversals.
Addressing real estate exposure requires careful planning and experienced advice. Reach out to Gehlen Dabbs Cash LLP with any questions.