Elspeth Manning

The  Bank of Montreal reported that Canada's housing market could tumble.  We are reaching

the limits of sustainability and the market needs moderation.   Housing prices are rising

very quickly and will soon enter the red zone.  Economist Sal Guatieri has indicated that to

balance this off, to control pricing nationwide, increasing interest rates may be the only

resource to take in correcting this senario.   Home prices rose a whopping 20% in the Metro 

Vancouver and Burnaby area, and 10% in the Norh Okanagan making prices an all-time high.  Since income earned is rising

14% slower than the cost of houses, purchasing becomes the most challenging it has ever

been. The price-to-income ratio in British Columbia is not on the same playing field,

causing mortgage payments for the typical owner consumer to be 35 percent of thier

dispposable household income.  Introducing higher interest rates tends to stabilize home

prices and keep them from rising too fast, so expect to see some of that this Spring.  Too

possibilites are prevelent here, one rates remain too low for too long, it could create a

housing bubble, and if rates rise too quickly it could cause prices to crash.  The Capital

Economics group has been warning the financial institutions that it would only take a pin-

prick of rising interest rates to set of the collapse.  They also state that the key

indicators around housing were at historic highs, and could fall 25 - 35 percent in the next

three years, if housing and mortgage rates continue to rise. As long as the Banking

Institutions don't raise interest rates too quickly most private sector analysis say  we

should see a soft landing rather than a crash.