Due to rapid population growth, the global property market prices have been increasing a lot among these decades. And Canada is no exception. The high demand to housing leads to an overvalue of 35% of Canadian properties, according to the study of housing costs around the world by the Economist Magazine in August.

Two major reasons will be accounted for the surging property price, huge demand from overseas and weak global economy. First, the insatiable demand from both the local and oversea market. Canada is popular among Asians and other nationalities to move in in the past few decades. And of course, there is natural population growth in Canada. These create a great demand towards Canadian housing. As a result,  general price of properties increases. Another noteworthy point is the demand for housing is relatively inelastic, which means the percentage change in price creates a smaller percentage change in demand.

Second, a weak global economy contributes to higher property prices because it leads to a “ultra-loose” monetary policy. At the present, interest rate is reduced to historic lows, which encourages people to borrow mortgage loans and purchase housing. Some may purchase housing for residence. Yet some may purchase for speculation. Both action boost the demand for housing, meanwhile raising prices.

Although the risk of housing asset is relatively low compared to other financial assets, people should always look out for a blast of property bubble due to the too-high property price level, which is unpredictable.

Reference: http://www.cbc.ca/news/business/canadian-house-prices-35-overvalued-economist-magazine-says-1.3040698

http://www.cbc.ca/news/business/house-prices-may-stay-high-in-canada-here-s-why-1.3095421