Is calling Canada’s real estate phenomenon “a bubble” accurate?

“We saw a [Bloomberg] study come out that had Canada as the second-most recognized real estate bubble on Earth after New Zealand,” said Ron Butler, “and that’s after home prices in Vancouver have come off as much as 35%. It’s still a massive bubble here.”

The confluence of foreign capital and historically-low interest rates is the culprit, according to Butler of Butler Mortgage, and while New Zealand took steps to protect its housing market from external influences, he doesn’t see how Canada could mirror that approach.

“Last year, New Zealand’s government banned foreign purchases of its real estate, so they must be worried over there,” said Butler. “It’s a phenomenally smaller country than us. We buy property in the U.S. all the time, so how do we ban foreign buyers and continue to buy in Florida?

“It’s not like in New Zealand—no New Zealander was flying to Beijing to buy property; it was a one-way street. However, in Canada, an empty home tax could be introduced and I think it would have very interesting results.”

Butler doesn’t know how exactly it would manifest, but he says that limiting foreign-owned influence is the right way to forward.

“Again, we can’t buy properties in Florida and ban the practice here—it’s neither fair nor rational—but if we could devise a method by which people could not come and buy up blocks of real estate that they do not live in, if we could devise that methodology it would a have long-term positive impact on the country,” he said.

In any case, the dam could be on the verge of bursting. Canadian household debt continues to jangle nerves, and while mortgage debt is shrinking, insolvencies aren’t.

“We’re seeing historic insolvencies across the country,” said Butler. “To me, these things are worrying, to say the least.”