HOUSING BUBBLES UP
But analysts not ready to push panic button
Garry Marr, Financial Post
Published: Tuesday, November 17, 2009
Canadian existing-home prices are now rising at a pace not seen in 20 years, fuelling talk that a bubble may be forming in the market.
The national average price of a home sold last month was $341,079, a 20.7% increase from a year ago, the Ottawabased Canadian Real Estate Association said yesterday. Sales also continued to climb with 42,288 units trading hands, a 41.5% jump from October 2008.
But at the same time that demand surges and interest rates stay at historic lows, supply remains critically low. New listings last month in the country's 25 largest markets were off 16% from a year ago.
"I don't think it's a bubble yet," said Doug Porter, an economist at Bank of Montreal. "The rapid-fire rebound in Canadian housing is showing no sign of letting up. While that may be causing some sweaty palms among bubble-phobes, the quick turn is a vivid illustration that monetary policy still works in this country."
Mr. Porter says large markets are skewing average prices, creating a national picture that might seem more buoyant than it is in reality.
Toronto, the largest market in the country, showed a 20% price increase last month from a year ago. In Vancouver, the most expensive market in the country, sales were up 170.8% from a year ago.
"There is a little bit of magic in the way they put these numbers together," said Mr. Porter.
Derek Holt, senior vice-president of economics at Scotia Capital, called what's happening in the marketplace today a once-in-a-lifetime situation. He said yesterday record low interest rates, tight supply, a favourable lending environment and a government stimulus program have all helped stir the housing pot.
"It's more the medium term, two-three years, where we could get into headaches potentially," said Mr. Holt. questioning whether consumers buying today are ready for interest rates that could be three to four percentage points higher by 2011.
Real estate author Garth Turner said the latest figures prove his thesis that Canada is now in a real-estate bubble. "We got this type of growth in sales and prices in the middle of a recession," he said.
"The latest [gross domestic product] numbers show the economy actually contracted," Mr. Turner said.
A new study from the Canadian Association of Accredited Mortgage Professionals released yesterday shows Canadians are benefiting from the lower interest rates. The average mortgage rate negotiated in the past year was 4.55%, a decline from 5.41% a year ago.
"Clearly people are thinking the worst is behind us and that comes as we have record low rates," said Jim Murphy, president of CAAMP. "If rates were to spike dramatically there could be some concern, but we just don't see that."
Gregory Klump, CREA chief economist, said the latest numbers must be kept in context.
"Activity in the early part of 2009 had fallen to a decade low. With improvement in consumer confidence and interest rates, sales activity was expected to respond."
Mr. Klump suggested prices will ease as sellers start to take advantage of higher prices. However, CREA is now predicting prices will rise 4.2% this year after suggesting they would increase by only 1.5%.
Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada Inc., said he has been expecting these type of price increases. "Last year at this time, everything just stopped.... Now we are just back to kind of normal. You are going to see these type of numbers continue into the spring because we are comparing them to last year."
But analysts not ready to push panic button
Garry Marr, Financial Post
Published: Tuesday, November 17, 2009
Canadian existing-home prices are now rising at a pace not seen in 20 years, fuelling talk that a bubble may be forming in the market.
The national average price of a home sold last month was $341,079, a 20.7% increase from a year ago, the Ottawabased Canadian Real Estate Association said yesterday. Sales also continued to climb with 42,288 units trading hands, a 41.5% jump from October 2008.
But at the same time that demand surges and interest rates stay at historic lows, supply remains critically low. New listings last month in the country's 25 largest markets were off 16% from a year ago.
"I don't think it's a bubble yet," said Doug Porter, an economist at Bank of Montreal. "The rapid-fire rebound in Canadian housing is showing no sign of letting up. While that may be causing some sweaty palms among bubble-phobes, the quick turn is a vivid illustration that monetary policy still works in this country."
Mr. Porter says large markets are skewing average prices, creating a national picture that might seem more buoyant than it is in reality.
Toronto, the largest market in the country, showed a 20% price increase last month from a year ago. In Vancouver, the most expensive market in the country, sales were up 170.8% from a year ago.
"There is a little bit of magic in the way they put these numbers together," said Mr. Porter.
Derek Holt, senior vice-president of economics at Scotia Capital, called what's happening in the marketplace today a once-in-a-lifetime situation. He said yesterday record low interest rates, tight supply, a favourable lending environment and a government stimulus program have all helped stir the housing pot.
"It's more the medium term, two-three years, where we could get into headaches potentially," said Mr. Holt. questioning whether consumers buying today are ready for interest rates that could be three to four percentage points higher by 2011.
Real estate author Garth Turner said the latest figures prove his thesis that Canada is now in a real-estate bubble. "We got this type of growth in sales and prices in the middle of a recession," he said.
"The latest [gross domestic product] numbers show the economy actually contracted," Mr. Turner said.
A new study from the Canadian Association of Accredited Mortgage Professionals released yesterday shows Canadians are benefiting from the lower interest rates. The average mortgage rate negotiated in the past year was 4.55%, a decline from 5.41% a year ago.
"Clearly people are thinking the worst is behind us and that comes as we have record low rates," said Jim Murphy, president of CAAMP. "If rates were to spike dramatically there could be some concern, but we just don't see that."
Gregory Klump, CREA chief economist, said the latest numbers must be kept in context.
"Activity in the early part of 2009 had fallen to a decade low. With improvement in consumer confidence and interest rates, sales activity was expected to respond."
Mr. Klump suggested prices will ease as sellers start to take advantage of higher prices. However, CREA is now predicting prices will rise 4.2% this year after suggesting they would increase by only 1.5%.
Michael Polzler, executive vice-president of Re/Max Ontario-Atlantic Canada Inc., said he has been expecting these type of price increases. "Last year at this time, everything just stopped.... Now we are just back to kind of normal. You are going to see these type of numbers continue into the spring because we are comparing them to last year."
