Canada's Housing Bubble

Apr 28, 2010 Mario Toneguzzi Calgary Herald

A housing "bubble," not a "bust," is developing in Canada because house prices are rising faster than economic fundamentals warrant, investment firm Edward Jones said in a report released Tuesday.

"Canada's housing market escaped the recent severe downturns in the U.S. and other countries," said the report authored by Kate Warne and Craig Fehr. "However, today's conditions in Canada share some characteristics of those countries prior to their downturns, leading us to take a cautious stance on housing investments.

"We also believe Canadian investors should prepare for the possible impact of a housing downturn on the economy."

But Diane Scott, president of the Calgary Real Estate Board, said people have been using the word "bubble" recently to describe the real estate market and it stems from Toronto and Vancouver, where prices and sales have "accelerated at tremendous speed."

"Calgary, we're still so well behaved," she said.

"I don't see where there's a bubble in Calgary. Now, the market is more active and prices are back to around where we were in 2005."

In Calgary, average MLS prices have dropped substantially from their peaks of nearly three years ago. Single-family homes sold for an average of $505,920 in July 2007, while condominiums topped out at $332,237 in May 2007.

According to the website of Mike Fotiou of First Place Realty, the average sale price of single-family homes so far this month up until Monday was $458,453 and for condos it was $291,369.

In a prepared statement in response to the Edward Jones report, Canada Mortgage and Housing Corp. said: "An April 2008 IMF (International Monetary Fund) report on housing market valuations states that Canada's housing market was not overvalued. . . .

"Of the 17 countries analyzed, the IMF only found two that were undervalued (Austria and Canada). A more recent IMF report was published in October of 2009, based on updated data. This report confirms that, overall, Canadian house prices are essentially at long-term equilibrium values."

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