Canada's Housing Bubble

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Further confirmation of Canada's housing bubble Print E-mail

January 27, 2010 Jonathan Ratne nationalpost.com

Call it what you want, but economists at Scotia Capital think the Canadian housing market is a bubble that faces downsides into next year – and the numbers continue to prove it.

Teranet’s measure of Canadian housing prices, the closest equivalent to the U.S. S&P/Cash Shiller Home Price Index, was just 0.1% off its all-time record high in November 2009.

“The gains are accelerating in recent months, and the December print is likely to firmly set a nationwide all-time record high,” Derek Holt and Karen Cordes said Wednesday.

While Canadian house prices went down like most other countries, they didn’t stay there. In fact, Teranet’s measure of house prices is up 92% nationwide since the beginning of 2000, blowing most other asset classes out of the water.

The economists compared this with U.S. home prices, which climbed 105% from the start of the decade until they peaked in 2006.

Regionally, Calgary is up 120% in the decade, Vancouver 116%, Montreal 110%, Ottawa 90%, Halifax 85% and Toronto 66%. But Scotia does not buy the assertion that only select markets are in frothy territory.

“All regions of the country have participated with hefty price gains over the past decade on the march to record nationwide prices,” the economists said.

They cited the downside risk posed by a further recovery in supply, a material increase in variable and fixed mortgage rates, a leveling off of new mortgage product adoption rates and exhaustion of pent-up demand from the crisis period.
 
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+3 # Alistair McLaughlin 2010-01-27 19:10
It's a real shame that steadily rising housing prices have come to be seen as synonymous with economic growth and increased wealth. It is nothing of the sort. It is inflation, plain and simple. And like all inflation, house price inflation does not create wealth, it merely redistributes wealth from one group to another. In this case, it transfers wealth from first-time home-buyers (of which there will always be a steady new supply) to homeowners, real estate agents, developers and builders. And we're all told not to worry, because the key is to get yourself on the other side of that ledger (the ownership side) after which you too will begin building wealth. That sounds more like a perpetual pyramid scheme than legitimate growth, but I wouldn't count on common sense returning to central banking and mortgage policy anytime soon. Too many "stakeholders" have an interest in a perpetual housing boom.

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-1 # From Canada 2010-01-27 19:20
Yes it is about supply and demand, and there seems to be a demand right now. But a lot of the demand is an emotional frenzy brought on by low interest rates, confusing reports from media, banks, government, and any agency that makes a profit from the sale of real estate.

We have rising unemployment(sa y what you want about the latest numbers, lets see what they are in Feb.), artificially held low interest rates, record government deficits, both federally and provincially, rising taxes, record high affordability, etc, etc,. This is combined with a world wide economical contraction in wealth and production. It's funny how we need to have 2 or 3 consecutive quarters of contraction to be termed a recession, but one number in 2/3's of a quarter and we have a recovery.

My spouse is a financial planner, working almost exclusively with middle class working families and the horror stories I hear is unbelievable. People living in houses they bought 10 years ago owing more than they originally paid due to refinancing for one reason or another. Young couples buying homes with 5% down, 35 year amortization, with mortgages totalling 6 to 7 years total income because the interest rates are so low that they now qualify for larger monthly payments. These 2 examples by the way are examples of what is going on right now, in late 2009, not last year. I could go on and on with scary stories.

We as Canadians live in the best country in the world, but we need to get off of our high horses and face facts that we are not immune to what the rest of the world is enduring. We have to pay the piper, we have just been better at ho-ho-holding the payments.

We need to let the correction happen and get it over with, we have bigger things coming up to deal with, such as health care for example. We have 4+million Canadians over 65 years old and the first baby boomer hasn't even turned 65 yet. They are over 30% of our population.

Batten down your financial hatches, there's a storm coming.

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