Judging by the latest real estate data, the Canadian housing market could scarcely be better. Average home prices are up more than 16 per cent this year, and in May they hit an all-time monthly high, according to the Canadian Real Estate Association. By those numbers, Canada didn’t just sidestep the housing market crash that continues to plague the United States, it sailed right through it virtually unscathed. And yet, there are plenty of signs that the Canadian housing market is still sitting on some very shaky ground—and even the potential that Canada’s big housing crash is yet to come.

There is one particular statistic that suggests trouble could be brewing. Unlike in the U.S., Britain and most European countries, household debt in Canada is, incredibly, still growing. That rising debt is being driven largely by record-low interest rates. Canadians have been buying homes not so much because they can afford them, but because many believe there’s never been a better time to buy, with lending rates so low. “There is no doubt that record-low mortgage rates have juiced Canada’s housing market,” wrote BMO economist Sal Guatieri, in a recent newsletter. Houses are barely more affordable now than they were during the market peak. And as people keep buying, houses may only become less and less affordable. Continue…