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3 Reasons Why Canada’s Housing Bears Have it All Wrong

By Nelson Smith for The Motley Fool

Many prominent Canadian analysts, pundits, and investors agree: Canada’s housing market — especially in large centres like Toronto and Vancouver — is in a massive bubble.

These folks have some compelling evidence on their side. Record-low interest rates made large mortgages seem affordable. Now that rates are beginning to normalize, thousands of homeowners who are renewing their five-year terms will be in for a major shock.

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Various levels of governments are doing all they can to prick the bubble, too. The federal government has rewritten mortgage default insurance regulations several times, making it tougher to qualify for a mortgage each time. Provincial governments have instituted foreign buyers’ taxes, and municipalities have introduced large land-transfer taxes.

Despite these (and other) changes designed to slow the housing market, values stay persistently high. Some might argue these measures have performed exactly as designed, slowing things down without causing a major downturn. But the vocal group of bears isn’t happy, saying that prices will inevitably fall in a big way. Some are calling for a 20-30% drop nationwide, with a decline of 50% in Toronto and Vancouver.

I used to be part of this group, but I’ve realized the error of my ways. Folks looking to buy cheap, prime real estate in Canada are going to be waiting a long time. Here are three reasons why.

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