Canada Back in a Housing Bubble?

Wednesday’s release of the Teranet-National Bank National Composite House Price Index shows a vigorous gain of 2% in Canadian resale house prices from July to August. The national house price index (based on six cities) has now risen four straight months (and likely will show further increases in September and October).

Monthly rises in August were 2.7% in Toronto, 2.0% in Calgary, 1.7% in Vancouver, 1.5% in Ottawa, 1.2% in Montreal and 0.6% in Halifax.

For Toronto it was the fourth consecutive rise of 2% or more, taking the cumulative gain to 9.4% in just four months,

noted the monthly report from Teranet and National Bank.

Montreal, Halifax and Ottawa prices in August are now above their respective peaks attained during the housing boom. August house prices remain below boom-era peaks in Toronto (-3.0%), Vancouver (-7.7%) and Calgary (-12.9%).

This recent leap in house prices is putting housing back into overvalued territory at the national level, going by the IMF model. As for traditional valuation yardsticks (as mentioned in the IMF study) the existing state of overvaluation is becoming more substantial.

Comments

[chris coonan:]

eh?

Oct 29 06:09 AM

[montyman:]

At last an article on Canadian housing! :)
Mr. MacDonald, will Canadian house prices ever correct? Or does this rise continue long term?

Oct 29 08:49 AM

[bob adamson:]

Through a fortunate combination of luck and good economic management Canada entered 2007 and moved through the global economic meltdown of the fall of 2008 with a relatively unscathed domestic residential housing market. Prudent mortgage lending practices, sound banks with adequate bank capital to maintain mortgage lending to good customers, a well managed and prudent Federal mortgage insurance agency (CMHC) and a Federal Government able to purchase much of the current mortgage stock from the banks (stock that was a sound Federal Government investment) in the fall of 2008 to maintain ample bank liquidity all played their part.

Thus Canada and its housing market have suffered only a ‘normal’ post WW II recession up to now. However, traditionally, Canada’s experience of post WW II recessions is that, compare to the US and Western Europe, their impact domestically is late to hit but deeper and more long lasting if the recession is prolonged.

In light of the forgoing, if the current recession globally is truly lifting then Canada and its housing market may well avoid a further correction. The historically very low interest rates are encouraging residential purchases. Hoverer, if the global recession drags on, unemployment and reduced economic opportunities will cause the housing market to reverse its current recovery. Dramatic gains or losses in real estate values should not in any event occur, however.

Oct 29 11:44 AM

[E Nuff Sed:]

Tbe bubble in canadian housing coupled with bubbling commodity prices is ominous. The BoC is caught between a rock and a hard place - if it raises interest rates the dollar will go through the roof and if it does not inflation should rear up again. I think BoC should start tightening soon.

Nov 08 05:39 PM