Are we in a housing bubble? Expert admits ‘we don’t know’

CIBC economist Ben Tal says more information on mortgages and borrowers is required to accurately gauge the health of the housing market. Getty Images

Benjamin Tal, a highly respected housing market expert and the No. 2 economist at CIBC, is raising alarm bells over the lack of reliable information available to assess what kind of shape the country’s housing market is in.

In a new and unusually candid commentary, Tal calls the situation “unhealthy.”

The fact that critical information about mortgage debt levels – such as the precise dollar value of money that’s been borrowed, when and by whom — isn’t made more widely available is “mind-boggling,” Tal says, given the importance of the housing market to the overall economy.

“Most agree that the Canadian housing market is overshooting. The debate is largely over the trajectory of the adjustment,” the commentary says.

All agree that the “real test” for the market is when interest rates start to rise, Tal says, and those borrowers with oversized loans relative to income will have their finances stretched.

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While most indicators at hand suggest a gradual rise in rates that will be comfortably absorbed by borrowers (supporting the “soft landing” scenario many experts say we’re headed for) Tal admits there’s a dearth of information to make a clean assessment.

“How can you determine the level of rate sensitivity if you do not have information,” Tal said.

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Information such as the dollar value of mortgages that are originated every three months, the credit score of borrowers of those specific loans, or what the share of foreign investment is in areas like Toronto’s booming condo market isn’t available to most experts.

READ MORE: Toronto’s condo construction towers over Big Apple’s

“The short answer is to those questions and many others is that we simply don’t know,” the CIBC economist said.

There are parties who do possess much of that info – banks and other lenders. But for competitive reasons, they don’t share it easily.

Still, based on the above, those harbouring concerns Canada’s market is prone to burst at some point can perhaps take some comfort in the behaviour from those closest to the information.

Banks and other lenders continue to lend at historically low rates, with BMO moving last week to reintroduce home loans charging interest below 3 per cent on its most popular mortgage products.

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Experts such as the Conference Board of Canada have recently suggested that the national market is headed for slight decline in prices nationally over the next few years.

READ MORE: What bubble? Housing market in fine shape, Conference Board says

The Ottawa-based think tank made the assessment based on demographic trends and the assumption that rates will rise gradually.

“We believe that continued population growth, additional employment gains and modest mortgage rate increases will limit potential price declines in 2014 and 2015,” the body’s report said.

Tal says that lack of information has led to undue negative speculation about the health of the market relying on “questionable” or anecdotal evidence.

READ MORE: House price correction to ‘start this year,’ big-name investor warns

Many foreign investors for example cite a yawning gap that has been opened between incomes and debt levels as their primary reason for their bearish views and opinions that homes are overvalued.

Even if lenders can’t be parted from their data, credit bureaus, regulators and federal housing authorities have the capacity to “provide more timely and comprehensive housing information,” Tal said. “The time to act is now.”

With new players like Finance Minister Joe Oliver at the helm, there’s “an opportunity to chart a course that reduces any potential risk of a real estate bubble by making data availability a top priority.”

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