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Decoding Canada's housing market signals

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Talk of a potential Canadian housing bubble has erupted recently.

Last week, bank executives talked about "warning signs" of excessively high home prices. But just days later, BMO, TD and RBC all offered homeowners a record-low fixed mortgage rate below 3 percent.

Peter Norman, an economist at Altus Group, says talk of a housing bubble -- even by bank executives -- is premature.

"We don't see the banks' own analysts being particularly concerned about the housing market," he tells BNN. "And we don't see the banks really changing their behaviour very much."

He adds: "The data that keeps rolling in…really shows that at best we have a kind of steady and stable market."

Norman also says he doesn't see mortgage rates moving significantly higher over the next five years. "We'll probably be in an environment where it will be one to two percentage points higher than today," he says.

But not all analysts agree that talk of a housing bubble is premature. David Madani of Capital Economics says the Bank of Canada and other economists are being far too upbeat about the effect of low interest rates.

"Given the high level of house prices relative to incomes, we doubt the menu of mortgages currently on tap will generate further growth in home resale transactions this year and next, though we do expect these very low mortgage rates will help to buffer the expected slowdown in home resales this year and next," Madani said in a recent note.

"The Bank's more upbeat view on household expenditure [in its recent interest rate decision] caught our eye, because it assumes that growth in housing-related investment will be sustained this year and next, thanks to very favourable financing conditions, presumably with house prices remaining stable. In our view, this sounds like a risky proposition, not least because of the excesses in new construction, now falling house prices in some cities and reports showing declining consumer confidence."

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