Canada's Housing Bubble

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One housing bubble down, one to go: Rosenberg Print E-mail

Jun 6, 2012 Pamela Heaven business.financialpost.com

Vancouver’s housing bubble has burst, but Toronto’s remains “as hot as the weather,” says Gluskin Sheff chief economist David Rosenberg.

In a note Wednesday entitled Tale of two cities, Rosenberg said Vancouver real estate has cooled significantly, and is now showing signs of turning into a buyers’ market.

Sales of existing homes in Vancouver sank 15.5% from a year ago May, with the sales for the month coming in the lowest for any May since 2001. At the same time the active inventory backlog surged 16.8% and new listings were up 14.4% from a year ago.

“The supply-demand balance showed the increasing emergence of a buyer’s market taking hold, with average selling prices for single-family homes deflating year-on-year,” Rosenberg said.

Not so in the Greater Toronto Area where home sales rose 11% in May. Supply is also building there too, but prices continue to climb. The average price of a resale  home resale hit $516,787 in May, up 6.5% from a year ago, Rosenberg said, despite a cooling condo market.

That may be why the Bank of Canada signalled this week that it is still worried about Canada’s housing boom and the amount of leverage behind it.

Here’s what the Bank said Tuesday:

“Although economic growth in Canada was slightly slower than expected in the first quarter, underlying economic momentum appears largely consistent with expectations. However, the composition of growth is less balanced. In particular, housing activity has been stronger than expected, and households continue to add to their debt burden in an environment of modest income growth.”

The warning is apt. Rosenberg said if the Bank of Canada felt the need to re-establish parity between short-term rates and its inflation target it would have to raise the rate 100 basis points.

“That wouldn’t cause a recession, but it sure would be painful for many households,” leading to more loan defaults and less spending growth.

 
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