The average price of a Canadian home hit $508,567 in March, jumping nearly 16% from 2015 levels. Sales activity also rose 12%—another record.

According to a new analysis from the Broadbent Institute in Ottawa, the average Canadian home now costs more than 400 weeks’ worth of earnings. That’s up from 200 weeks of labour time in 1970 and 300 weeks in 1990. The Economist recently reported that Canada’s housing prices are 35% overvalued when compared to Canadian incomes.

Are we in the midst of a massive housing bubble?

Image Source: Broadbent Institute

Image Source: Broadbent Institute

A tale of two cities

The housing bubble isn’t everywhere. The statistics listed above are heavily skewed by two red-hot markets: Vancouver and Toronto. Home sales have jumped an astounding 50% over the past year in Vancouver and roughly 12% in Toronto (Canada’s biggest market). According to real estate company Royal LePage, “Demand for expensive luxury homes in the two cities is at the highest on record so far this year.” Outside those markets, home prices are growing by less than 5%.

Still, those two markets have no signs of slowing down. According to a recent report from Royal Bank of Canada (TSX:RY)(NYSE:RY), “The fact that Vancouver’s affordability readings approach all-time highs for any market in Canada—albeit more so for single detached homes than condos—exerts little restraining effect on homebuyer demand at this stage. Given the current high degree of tightness in the market, further price acceleration and affordability deterioration are likely in the near future.”

Buyers are stretched

A new survey by Bank of Montreal (TSX:BMO)(NYSE:BMO) found that almost a quarter of Canada’s citizens are still living paycheque to paycheque. Roughly 25% of respondents said they had hardly anything set aside, and more than half reported having less than $10,000 in emergency funds.

According to research from Genworth Canada, many buyers are borrowing money from their family and friends to buy homes. The typical first-time buyer in Genworth’s research paid about $293,000 for a first property. Almost a third of them got money from close acquaintances to help afford their down payments.

“Current and recent buyers need to devote many more weeks of labour time to the financing of their home than their predecessors,” says Marc Lavoie, a policy fellow at the Broadbent Institute. “No wonder so many young prospective buyers, especially those in major cities, feel that owning a residential unit is more like a long-distance dream.”

Buyers beware

Many analysts believe that Canada is currently in its first real estate bubble in decades. If and when it pops, some fear that big-time lenders such as RBC, BMO, and Toronto-Dominion Bank (TSX:TD)(NYSE:TD) may go the way of American banks during the last financial crisis, posting massive losses and watching their stocks sink 50% or more.

If the real estate market even hiccups there, it could have a domino effect fairly quickly given that homeowners are already stretched. While the big dividend yields are tempting, investing in Canadian banks carries a large amount of risk. Judging by what happened in the U.S., downside of 50% or more is not out of the question.

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