Canada's Housing Bubble

Apr 27, 2010 Gary Lamphier Edmonton Journal

Looking for a tidy little bungalow on Vancouver's west side, close to Kits Beach?

You'll need a big bank account. The average price in the first quarter topped $1.1 million, according to Royal LePage.

A tad steep for you? No problem. Let's head over to the grittier east side of town, where prices are more, uh, reasonable.

For just $674,000 you could buy the same bungalow, and for $402,000 -- $150,000 more than you'd pay in Edmonton -- you could own a typical condo.

Yes, there is a housing bubble in Canada, even if Bank of Canada Governor Mark Carney is reluctant to use the 'B' word.

But it's not a national issue. It's an entirely regional phenomenon -- a point that the talking heads on national television seem unable to grasp, possibly because they're fixated on what's happening in the Centre of the Universe, or on the West Coast.

In cities like Edmonton, Calgary, Montreal and Ottawa, where prices remain largely in check, there's no sign of a bubble. A steady rebound, sure. But a boom? Hardly.

In fact, average prices in Edmonton and Calgary remain well below their 2007 peaks, and affordability -- a measure of average local income levels versus house prices -- remains high.

That's not the case in Vancouver, Victoria and Toronto, where prices have soared to nosebleed levels and bidding wars are now said to be commonplace.

In Toronto, the average bungalow price in the first quarter jumped 13.3 per cent versus the prior year to $459,000, while standard condo prices rose 10 per cent to $317,500.

The average price for all Toronto housing types -- from condos to two-storey executive-style homes -- hit $438,600 in March, according to a recent Scotiabank report. In Edmonton, it was $330,000 -- some $12,000 below the national average.

Recession? What recession? It didn't seem to affect prices in Canada's hottest markets, Vancouver and Toronto.

Toronto's average house prices continued to climb through 2008 and 2009, even as prices in Alberta's major cities declined from the all-time highs set in 2007.

In Edmonton, the average price of a single-detached home spiked to a record high of more than $420,000 in mid-2007. Last month, it sat at $388,500, up 11 per cent from the previous year, but still sharply below the 2007 peak.

Affordability levels in Alberta are also reasonable. According to a recent study by RBC Economics -- which measures the percentage of median pre-tax household income needed to cover a typical 25-year mortgage at current market prices -- Edmonton and Calgary both compare favourably.

For the fourth quarter of 2009 -- the latest period covered by RBC's analysis -- about 32.9 per cent of median pre-tax household income was needed to service the mortgage on a typical detached bungalow in Edmonton. In Calgary, the figure was 37.1 per cent.

The national average was 40.6 per cent -- roughly in line with the levels in Montreal and Ottawa. Meanwhile, Toronto weighed in at 49.1 per cent, and Vancouver checked in at a staggering 69 per cent.

For a standard two-storey home, the same pattern emerged. Calgary and Edmonton were comfortably below 40 per cent, while Toronto topped 58 per cent and Vancouver hit the scales at more than 77 per cent.