Canada's Housing Bubble

Dec 12, 2010 Stephen Dupuis Bild torontosun.com

While I’ve prided myself in walking away from conversations involving the housing bubble, or lack thereof, on the basis of me being fed up with telling people it doesn’t exist, a recent question at an Economic Forecast conference by the Ontario Home Builders’ Association inspired me to revisit the topic.

The event was titled The Year Ahead — Are We in a Housing Bubble? and as I sat with my colleagues prior to the panellists’ presentations, we struck up a conversation spawned by one simple (and very appropriate) question — What is a housing bubble, anyway?

No clear answers

Keep in mind that the room was filled with industry experts so a concrete answer should have been produced most instantly. Surprisingly enough, nobody at my table had a clear answer as everyone had to pause and collect their thoughts, mostly throwing together examples that frequented the words “U.S.” or “1980s.”

While we did eventually agree on a definition, by then the conference had started and the first order of business by moderator Brian Johnston of the OHBA’s Economic Review Committee was to offer a definition of the term “housing bubble,” much to my surprise.

The definition spawned from a source called Wikipedia, which lately has been more accurate than most dictionaries, and labels a housing bubble as rapid increases in valuations of real property until they reach unsustainable levels relative to incomes and other economic elements, followed by a reduction in price levels.

Market surge

So let’s take a look, shall we?

While housing prices have been on the rise since the economic hardships of 2008, I think “rapid increases in valuations” is a bit harsh, considering the fact that the surge in market activity can largely be attributed to buyers looking to beat the HST and new mortgage regulations.

With all that behind us, price growth has moderated and, according to a recent report released by the Royal Bank of Canada, the GTA’s housing market is showing improved affordability in the third quarter. Not only does that point strike the possibility of “reaching unsustainable levels” off the list, but it actually points to signs of a stabilizing, healthy market.

The final point in the definition references a reduction in price levels. I can only assume that this implies a massive slide, which probably sounds pretty absurd after reading the paragraphs above.

Subdued growth

Pascal Gauthier of TD Bank Financial Group expects growth in Ontario to be pretty subdued with approximately 1.5 to 2% in 2011. This will be mixed in with a reduction in the unemployment rate, with the possibility of a slight increase in interest rates to keep the market in check.

Douglas Porter of BMO Capital Market was on the same page, saying that the market will see “no deep, dark correction in the next few years.” He added that the summer of 2009 saw a record-high number of jobs with as many Canadians working as ever. Specifically, employment in the construction industry rose by 6%.

“The year 2010 was not what bubbles are made of,” Gauthier added, noting that he expects a soft and safe adjustment in the housing market in Canada. “If 2009 were to continue, particularly in the resale sector, then there would be worries, but 2011 and 2012 are not what market crashes are made of either.”

Stephen Dupuis is president and CEO of the Building Industry and Land Development Association (BILD). He can be reached at This e-mail address is being protected from spambots. You need JavaScript enabled to view it .