Ben Carlson, Columnist

Canada's Housing Bubble Will Burst

U.S. homeowners know what can happen to the economy when the market destabilizes.

June 21, 2017 at 2:00 PM UTC

Ben Carlson is director of institutional asset management at Ritholtz Wealth Management. He is the author of "Organizational Alpha: How to Add Value in Institutional Asset Management."

The Vancouver skyline.
Photographer: Don Emmert/AFP/Getty Images

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Canadian home sales fell the most in five years last month. That didn’t stop an increase in prices, which were up 18 percent nationwide from a year earlier. When you consider that most houses are leveraged assets, this represents huge gains for homeowners.

While leverage can help boost performance on the way up, it becomes very dangerous on the way down. Leverage can turn even the best investments into poor ones when things go wrong, as losses are amplified. Equity can get wiped out pretty quickly on an overleveraged asset.