Thursday, April 24, 2014
Canadian Housing Bubble Fears (2009 to today)
Timeline: A look through the years of Canadian housing bubble fears (buzzbuzzhome)
January 6, 2009
After the peak
After market activity peaked in 2007 and then wobbled through the 2008 recession, Royal LePage predicts average house prices in 2009 will dip by 3% to $295,000, while transactions will fall by 3.5%. President and CEO Phil Soper says to expect modestly lower home prices, not a U.S.-style collapse in the year ahead: "We are well into this inevitable cyclical correction."
November 16, 2009
Pent up demand or bubble?
In October, Canadian home prices climb 20% while sales surge by 41.5% year-over-year. Some economists suggest its fueled by pent up demand. Stewart Hall, an economist at HSBC Securities, won't call it a bona fide bubble, but he does say, "Beyond 2009 and getting into 2010, if we are continuing to throw off these heightened levels of activity, then I will become quite concerned that we are on the cusp of an asset bubble here."
December 19, 2009
The bubble of a bubble
The chief economist at Gluskin Sheff & Associates suggests home values are overvalued by 15 to 35%. At the Bank of Montreal, Doug Porter suggests "We're on the bubble of a bubble." Because of a possible bank rate hike and the incoming HST, Porter predicts a "bit of a buying frenzy coming this spring...followed by a pop in 2011."
February 10, 2010 — February 16, 2010
Double digit price increase
In December, the average resale home in Canada sold for $337,410, up 19% from 2008 while sales jumped by 72%. TD Economics suggests the average Canadian home is overvalued by 12%. BMO's Doug Porter predicts that the market will simmer down in the second half of the year: “By then, the bubble chatter should fade.” Others make more dire predictions.
June 24, 2010 — December 30, 2010
The world takes note
The international media starts paying more attention to whether the Canadian housing market is headed for a U.S.-style collapse:
• Vancouver's Real Estate Bubble Trouble – Bloomberg Businessweek
• Canada's Coming Housing Bust – CNN Money
• Now Get Ready For A 90% Collapse In Canadian Real Estate – Business Insider
In light of increasing debt loads among Canadians, Finance Minister Jim Flaherty announces new mortgage rules. Among them: reducing the max amortization period to 30 years from 35 years for government-backed insured mortgages with loan-to-value ratios of more than 80%.
The bank keeps the benchmark interest rate steady at one per cent at the end of May. Speaking to the Vancouver Board of Trade, the Governor of the Bank of Canada Mark Carney warns that interest rates "will not remain at their current levels forever" without offering a clear picture of when they will rise.
The GTA records its best May ever for new home sales. According to RealNet Canada, year-over-year sales on new construction homes jumped by 37%. Sales of high-rise units measured an impressive 50% increase and low-rise properties see a 24% surge.
Capital Economics releases a report on the Canadian housing market, suggesting prices could plunge by as much as 25% in the next three years.
In their predictions for the year ahead, Canadian Business suggests the housing market will crash in 2012. Demographia, an urban planning research firm and consultancy in the U.S., says that prices become unaffordable when they exceed three times income. At this point, median home prices in Canada have reached 4.6 times the gross median household income.
In 2012, Canadians' debt-to-disposable income rises to 152% from 150.6% at the end of 2011. Amid concerns that the market is overheated, Finance Minister Jim Flaherty steps in with new mortgage rules, lowering the amortization period from 30 years to 25 years. Read more here.
August 14, 2012
"Canada’s housing markets are expected to moderate over the rest of 2012 and into 2013 after showing sustained activity levels, specifically in the multiples segment, over the first half of 2012. Balanced market conditions in most local housing markets will result in a slowing in house price growth as well." – Mathieu Laberge, Deputy Chief Economist at the CMHC.
The Toronto Real Estate Board reports existing home sales dropped by 16% year-over-year in November. Prices rose by 1.6% to $485,328.
The Real Estate Board of Greater Vancouver lays out its stats for 2012 and finds the number of residential homes sold in the region fell 22.7% from 2011 while house prices dropped 2%.
CREA reports the number of homes sold in Canada dropped by 15.8% in February compared to 2011, while the average sale price dropped 1% to $368,895.
Scotiabank releases a report suggesting a cooling of the housing market is underway. The big bank also says not to expect much of an increase in prices in the next few years. TD Canada's forecast echoes the belief, making the case for a “gradual, modest, downward adjustment over the next three years.”
Though Scotiabank, Bank of Monteral and TD all agree that the hot housing market has mostly calmed down, that doesn't mean all the bubble fears have evaporated. The OECD names Canada's housing market as the third most overvalued in the world and faces a high risk of a price correction.
One year after the new mortgage rules took effect, Canada's largest metros see prices surge. In August, the GTA records a 21% jump in sales from 2012 and prices rise by about 5.5%. Greater Vancouver sees sales shoot up by more than 53%. However, Sadiq Adatia, chief investment officer at Sun Life Global Investments Inc., believes Canadian home prices could decline between 10 and 15% as mortgage rates rise and supply increases. “I don’t think the demand is going to be there for housing,” he says.
RealNet Canada reports that year-to-date sales of new construction homes in the GTA sank to their lowest level in 10 years
The Bank of Canada announces it will maintain the key interest rate at one per cent, despite previously warning that a rate hike was inevitable. In their 35-page report, they maintain there is still a risk of a housing correction given the renewed momentum of the market.
CREA releases its numbers for October. Existing home sales fell 3.2% month-over-month in October, the first drop in resales since February 2013 and the largest monthly decline since the slowdown in summer 2012. However, sales still stood 8.3% above 2012 levels for the same period. Many of the banks suggest that the market will stay calm, with RBC Economics suggesting that Canadian resale activity will remain largely static overall in 2014.
Fitch Ratings estimates that Canada’s housing market is 21% overvalued while the OECD recommends that the Bank of Canada raises interest rates by the end of 2014. In his testimony to the Senate Banking Committee, Bank of Canada governor Stephen Poloz says there's no evidence of a bubble.
BMO declares 2013 a year of "pleasant surprises" for the four largest markets in the country. However, the Bank of Canada takes a harder look at the market due to rising debt.
A Conference Board of Canada report lays the case for why the country is not on the brink of a bubble. Concerns tend to stem from ratios of house prices to apartment rents and incomes. Though those may be high, the board makes the case that they’re actually misleading since the ratio of mortgage payments to rents to income is a better gauge and “less alarming.”
The Bank of Montreal follows the lead of other institutions and moves its five-year fixed rate mortgage down to 2.99% from 3.49%.
The Teranet National House Price Index sees zero per cent growth between February and March. However, price growth was seen in the western cities of Vancouver, Calgary, Winnipeg, Victoria and Edmonton. The Canadian Real Estate Association's assessment shows a 4.9% spike in sales, year-over-year, though that tally was 8.2% below the 10-year average.
RealNet Canada's report names the first quarter of 2014 as the strongest in the last decade for GTA new home sales. High rise sales saw a 68% increase over the first quarter of 2013 and were up 35 per cent from the 10 year average. Low rise sales were up 51% from the first quarter of 2013 but down 8% from the 10 year average.
A BMO report points out that, aside from hotbeds like Calgary and Toronto, the housing boom wound down for many parts of Canada in 2008. However, the bank believes a major correction could still be in the cards for the country, with the risk of plunging the economy into a recession. One positive sign? The recent slowing in household credit growth in line with personal income is welcome.
April 23, 2014
The first quarter of 2014 was the strongest in the last decade for new home sales across the GTA. The high-rise and low-rise sales tallies, released this week by RealNet Canada, were truly staggering when one considers the many, many warnings Torontonians have heard in recent months about the city’s overheated market.
There were 4,962 high-rise sales in the first quarter, up 68 per cent over the first quarter of 2013 and up 35 per cent from the 10 year average. On the low-rise side, there were 3,966 sales, up 51 per cent from the first quarter of 2013 but down eight per cent from the 10 year average.
RealNet said that 2014 has seen the strongest January and March for GTA high-rise sales in the last decade. In March alone, there were 2,496 high-rise sales, up 105 per cent from March 2013 and 1,631 low-rise sales, up 65 per cent year-over-year.
Prices also saw strong growth in March. The RealNet New Home Price Index for the low-rise sector was $657,961, up three per cent over March 2013. On the high-rise side, prices rose two per cent to $436,898.