Canada's Housing Bubble

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Canada ranks in middle on global real estate froth scale Print E-mail

Mar 07, 2012 Michael Babad theglobeandmail.com

Where Canada stands

Canada ranks "in the middle of the pack" on the global real estate froth scale, Bank of Nova Scotia says in a new look at housing markets around the world.

"The global housing boom which began in the mid- to late-1990s and extended through the mid- to late-2000s was notable in its breadth, strength and longevity," economist Adrienne Warren says, and has taken different paths across different markets.

Ms. Warren tracked inflation-adjusted prices in 12 advanced economies. In Japan and Germany, prices declined. In four markets - the United States, Britain, Ireland and Spain - average prices have plunged markedly from their peaks. And in six - Canada, Australia, France, Italy, Sweden and Switzerland - prices remain in record territory or close to it.

On average, a cycle of rising prices was 12 years. Italy saw the shortest, at eight years, and Ireland and Sweden the highest at 15. Canada's boom has run for 13 years.

"Based on cumulative price increases since the start of their respective cycles, the U.S. real estate market appears the least overvalued, with average prices having reverted back to mid-1990s levels," Ms. Warren said of the country most cited for the housing crash.

She found "little evidence" of marked overvaluation in Switzerland and Italy, at about 30 per cent over the cycle, and counted Ireland, Sweden and Britain as the most overvalued, at between 130 per cent and 150 per cent.

"Canada falls in the middle of the pack, with inflation-adjusted average home prices rising 83 per cent since 1998. The relatively smaller cumulative price increase compared with some of the frothiest markets reflects in part a later takeoff. Canada’s residential real estate boom started several years after many of its counterparts, with the economy still feeling the effects of the deep recession of the early 1990s and a weak labour market recovery through mid-decade."

Canada's housing market has been cooling, though few see a meltdown in the works.

According to new projections from the Canadian Real Estate Association today, home sales in Canada are expected to inch up this year and dip next, while prices slip this year and rise in 2013. National numbers in each case are skewed by Ontario and Vancouver, respectively.

"Risks to the Canadian economic outlook remain elevated owing to the European sovereign debt quagmire, but the continuation of low interest rates is the silver lining," the group's chief economist, Gregory Klump, said in the new report today.

"So long as the European debt crisis is contained and a global economic recession avoided, low interest rates will support Canadian home sales and prices. Recent trends are reassuring, but interest rates remaining low for longer will doubtless keep the Canadian housing market under scrutiny for signs of overheating."

CREA forecast sales will climb 0.3 per cent this year to 458,800 on better demand in Alberta, Saskatchewan and Nova Scotia, but slip by the same percentage, to 457,200, in 2013. However, all provinces but Ontario will see "modest gains" next year.

National average prices have spiked on sales of rich properties in Vancouver, but CREA said that won't likely happen again this year. Thus, the national average is projected to slip 1.1 per cent to $359,100 this year, and rise 0.9 per cent in 2013 to $362,300.

Finance Minister Jim Flaherty said today he's still concerned about the condo market, but that housing overall has moderated.

 
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