A housing bubble that has been causing pain for Canadian homeowners and buyers alike may have started to pop as housing prices plummeted at a historic rate in August.

Housing prices fell 2.4% in August as compared to July, the largest monthly decline since the data was first tracked in 1999

“Canada’s housing market, like ours in the U.S. and many others around the world, became severely overheated by excess liquidity infusions from central banks,” said Antoni. “That money creation drove down interest rates, making borrowing costs cheap and made larger mortgages more affordable. That goosed demand and sent home prices to unsustainable levels.”

Antoni also noted that the Federal Reserve owns a significant portfolio of bonds backed by mortgages, a key difference between the Canadian and American housing markets. Purchasing a large quantity of these so-called Mortgage-Backed Securities (MBS) drove demand for the underlying asset, namely mortgages, said Antoni.

However, since the Fed has been raising interest rates, if it sold these MBS holdings, it would stand to lose more than half a trillion dollars, according to Antoni. The Fed could certainly do this and offset the loss with stimulus, but doing so would certainly drive inflation, said Antoni.