Canada’s housing boom was recently hailed as one of the longest in the Western world. But as 2011 drew to an end, housing market experts issued dire warnings that the housing market is cooling. Merrill Lynch, the Bank of Canada, TD, Royal Bank of Canada and the Bank of Montreal have all said that Canadians could face challenging markets for the next two years, particularly in BC and Ontario.

Despite Toronto’s red-hot market, Rob Carrick of The Globe and Mail says one of the best ways to build wealth in 2012 is to avoid “drinking the housing market Kool-Aid”. Among his other tips: “Explore your inner renter” (Gen X and Gen Y, and Boomer editions). Carrick is one of many experts advocating renting over housing as the market destabilizes. US apartment vacancies hit a ten-year low in December at 5.2 percent as rising foreclosures, tighter mortgage lending standards, and low housing starts made rental housing the best-performing segment of commercial real estate for two straight years. In addition to traditional low-vacancy locales like New York City, low vacancy rates abound in New Haven, CT, Minneapolis, MN, Portland, OR, and San Jose, CA; rents rose the quickest in Chattanooga, TN and Austin, TX. Canadians, holding on to the dream of homeownership with the grim desperation of Americans before the mortgage crisis, remain unmoved.

Last month, The IMF (that’s the International Monetary Fund, not the Impossible Missions Force) called for a review of the rules that govern Canada Mortgage and Housing Corporation, one of the largest financial institutions in the country, which operates without formal oversight. The IMF suggested the crown corporation needed stronger risk management because CMHC backs mortgages with less than 20% down through mortgage insurance, Canadians have record levels of household debt, and some cities have housing-bubble prices. With household debt at a record 150 percent of disposable income, the IMF warned that a drop in housing prices would be a blow to indebted consumers. The Canadian economy, which grew by 3.2 percent amid global financial meltdowns, is expected to weaken this year.

With the country in its 13th year of rising home prices, experts have been predicting a price adjustment for many years. CMHC has taken several steps to tighten mortgage lending and last year the federal government made changes to the National Housing Act to compensate the government for the risk it is taking through CMHC’s mortgage insurance. With the US housing market still in recovery and the Chinese government taking steps to prevent a housing collapse this year, Canada is poised for a tumultuous 2012.

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