Canada's Housing Bubble

Oct 02, 2010 Mario Toneguzzi Calgary Herald

Sector 'looks vulnerable' in Alberta, B.C.

House prices in Alberta and B.C. have "overshot" their fair market value by the largest margin in the country, says a report released Thursday by CIBC World Markets Inc.

The report said the housing sector "looks vulnerable" in the West.

It said house prices in B.C. are overvalued by 16.8 per cent and they are overvalued by 12.5 per cent in Alberta. The national average is 11.8 per cent above "fair value."

Across the country, CIBC said the overvalue was as follows: 11.6 per cent in Ontario, 11.3 per cent in Saskatchewan/Manitoba, 6.4 per cent in Quebec and 5.9 per cent in Atlantic Canada.

"Granted, no part of Canada looks immune to further housing market weakness, with significant momentum having been more recently lost," said the report.

"But it's in B.C. and Alberta where housing prices have overshot fair market value by the largest margin, with an ongoing correction expected to dull residential construction activity and blunt consumer enthusiasm."

In Calgary month-to-date in September until Wednesday, there were 917 single-family MLS sales for an average price of $455,761 while there have been 342 condo sales for an average of $281,659, according to the website of realtor Mike Fotiou of First Place Realty.

In August, Calgary had 867 single-family MLS sales for an average price of $445,617 and 364 condo sales for an average of $286,384.

Also on Thursday, Canada Mortgage and Housing Corp. released a report saying the value of housing activity related to new home construction, as well as the rental, sale and renovation of existing homes in Canada, reached $307 billion 2009, or more than one-fifth of Canada's total gross domestic product.

"Housing is one of those industries that is a leading indicator of economic activity," said Lai Sing Louie, regional economist with the CMHC in Calgary.

"When you take a look at what's involved in building a house, it involves a projection of economic activity down the road. So when you have a high level of housing starts, it's indicating that the economy was stimulated for a while."

That stimulation comes from material costs and labour. He said house purchases also trigger consumer spending for things such as furniture and appliances.

"Housing is a very important aspect of every provincial economy," he said.

According to the CMHC report, the number of housing starts in the province peaked in the past decade in 2006 at 48,962.

That same year there were 17,046 housing starts in the Calgary census metropolitan area. Last year, there were 20,298 housing starts in Alberta and 6,318 in the Calgary CMA.

There were 57,786 sales in Alberta last year and 19,139 in the Calgary area.

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