Three Canadian housing market scenarios (and ‘no happy ending’)

A major American bank paints three scenarios for Canada’s inflated housing markets, and there’s “no happy ending” for any of them.

There are degrees of severity, though, which Bank of America Merrill Lynch laid out in a recent report on housing markets in Canada, Australia and New Zealand, all of which are in something of a similar position.

“Canada, Australia and New Zealand have all faced commodity shocks that have hampered growth and left the economy highly dependent on housing activity,” Emanuella Enenajor, the bank’s North America economist, and her colleague Tony Morriss, an economist and rates strategist, said in their report.

“Despite mounting financial stability risks, central banks in these regions are stuck with low rates to stimulate growth. This has created conditions for continued expansion of housing activity and household debt.”

This comes as Finance Minister Bill Morneau moved again to cool the market, with a double-barreled approach that closes a tax loophole and widens mortgage stress tests.