Rethinking Housing Booms and Busts

Will Canada suffer a housing bubble? Will debt crush the mortgage-strapped in the case of global economic change?

These questions weigh on the minds of Canadian savers and borrowers; yet the business of advice-giving and risk management all the more difficult. Fortunately, some more precise forecasting help may soon be available.

Prior to the economic downturn in 2007-2009, economic research largely focused on the interplay between households, businesses, and financial institutions that act as the intermediaries between the savers and borrowers. At the Annual Economic Conference of the Bank of Canada, held in October 2012, it was concluded that this approach to economic analysis was too simplistic, according to a just-released report:

"We have had to reconsider how the financial system channels funds from savers to borrowers. In particular, more research is required to understand the traditional banking sector, as well as the market-based finance sector (i.e., the shadow banking system), and how both these sectors create links that redistribute risks through the financial system."

Economic researches have, according shifted their focus to attempting to explain the boom and bust of the housing market, as well as exploring alternative housing and mortgage policies. Click here for the comprehensive report.