Canada’s housing market is still hot despite crash predictions

A recent report suggests growth in 12 of 15 Canadian centres, despite ‘bubble’ warnings

A new report by Re/Max shows Canada’s housing market is stronger this year compared to 2011, mitigating warnings about an impending market cool-down or crash—at least for now. The report speaks of “strong demand and diminished supply setting the stage for a heated spring 2012,” adding that “12 of 15 Canadian centres (80 per cent) were reporting year-to-date (January-February) sales activity ahead of last year’s levels, with more than half reporting double-digit increases.”

The following cities have seen the biggest growth: Halifax-Dartmouth (35 per cent), Saskatoon (21 per cent), Saint John (20 per cent), Regina (16 per cent), St. John’s (12.5 per cent) and Greater Toronto Area (12 per cent). Vancouver, Kitchener-Waterloo, and Winnipeg “have experienced softening in housing activity so far this year.”

Re/Max analysts credit the bump to a combination of low interest rates, strong consumer confidence, and mild winter weather across the country.

Weather this early winter activity is taking away steam from the spring—usually the prime-time home-buying season—is anyone’s guess, as explored in this Financial Post article.




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Canada’s housing market is still hot despite crash predictions

  1. Here in Calgary, the reports are that the number of sellers available is uncommonly low. Yet in every article about housing, Maclean’s finds some way to try to say that it’s gonna collapse Real Soon Now.

    Starting to think that you guys are a little too invested in your own prognostications at this point.

    • There are two separate questions here.
      1. Is the Canadian housing market overvalued, relative to fundamentals?
      2. When (if ever) will housing start to crash?

      The answer to #1 is almost certainly yes. If you compare growth in prices to historical norms, if you look at the ratio of median incomes to the price of homes, or if you look at the role of specific government policies and rising household debt in fuelling the boom, that part is a slam dunk.

      The answer to #2 is kind of tricky, on the other hand. Even if we kind of know we are in a bubble, it can be tempting to ride it. Isaac Newton, for instance, bought shares of the South Sea Company (the subject of a British bubble) early, and sold at a large profit. When shares kept going up, he  kept kicking himself (although he thought the fundamentals were dubious), and finally bought more shares around the peak. Unfortunately for him, what went up did indeed come down.

      • There’s one other question.
        Where exactly are we talking about?
        Fundamentals vs Housing Prices are very different in, say, the Eastern Townships as compared to Vancouver as compared to Calgary as compared to Whitehorse as compared to Penticton or Fort Mac or Toronto or Dildo or Regina, etc.

        And yet that sort of variation is never taken into account. Are some areas overvalued? Very likely. Does Macleans ever suggest which areas those are in their fear stoking? No.

        But then again.. fear sells better than “things are okay for most of the country”

        • The problem is that if the housing bubble bursts, it may not be a simple correction of prices to their fundamental values. First you’ll see a collapse of prices (probably followed by a wave of foreclosures/defaults), then you’ll get a tighter credit market (and more austerity from the government as it covers CMHC losses), and then you’ll get yet another wave of foreclosures/defaults driven by the tight credit market. 

          The first order effect primarily hits those with overvalued homes, however, the second order effects hit everybody. And government policy can redistribute the effects of a financial collapse. For instance, in the US, TARP ensured that finance bore little of the costs of the crash (while the output of construction fell 20%, and manufacturing by 15%). In contrast, Canada’s response to the crisis bailed out the housing and construction sectors (perhaps a bit too much). 

  2. Be in DEBT, work ’till you drop.

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