Canada's Housing Bubble

Jul 22, 2011 The Canadian Press edmonton.ctv.ca

TORONTO — The Canadian housing market is making a transition to a much slower pace growth compared to the surge seen in the past decade, according to a Royal Bank (TSX:RY) housing market outlook.

The report released Thursday said home resales are expected to grow by 0.9 per cent this year and remain unchanged in 2012, while home prices will increase by 4.4 per cent this year and 0.4 per cent in 2012.

"Such results would mark a significant slowing relative to the performance during the 2002-2008 period," senior economist Robert Hogue wrote in the report.

Since 2008, the transition in the housing market has been extremely volatile reflecting the impact of events both at home and abroad, it said.

Those changes include a global recession, as well as domestic policy changes -- such as a sharp drop in interest rates, three rounds of mortgage rule changes and the introduction of the HST in Ontario and British Columbia.

"Our view is that less turbulent economic and policy environments will support a smoother process going forward," Hogue said.

"The main policy shift will be one toward progressively higher interest rates, which will cool demand but not deep-freeze it."

At the provincial level, RBC forecasts that the Alberta market will post the strongest growth in home sales this year and next, while it expects a modest decline in Quebec.

Meanwhile, "perplexing developments" in the Vancouver area, where average home prices have surged despite slower resales, are expected to be partly reversed, making B.C. the only province to see a price decline in the bank's 2012 forecast.

Home sales have rebounded from lows reported last summer to 465,000 units in the first quarter, although they have softened to 443,000 units in the second quarter.

"This slowing is in line with our view that the latest changes in mortgage lending rules announced in January of this year and implemented in March and April brought forward some demand that would have otherwise occurred later on," Hogue said.

"In turn, the second-quarter slowing represented somewhat of a 'payback,' which will then be followed by a return to mildly stronger activity."

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Prof. Pye Chartt
More disappointing news for the "Bubble People." They've been predicting an imminent real estate market crash for over 18 months now and, instead, housing prices actually rose, overall, during the period. (Gee, good thing that you sold your prime asset way back.) Here they're being told that 2012 will simply be "flat." Don't lose the faith, friends. All markets eventually decline. One day you'll be right. Don't abandon your wizardly predictions and prognostications.

Shannon
I certainly hope the prices of homes don't remain "flat" in Alberta. At this rate my kids, and any other recent grads, will be living at home indefinitely! Historically a home is suppose to cost no more than three times your income; and sadly, I'm not seeing many careers offering compensation in the 150k range. Not to be insensitive to all those who have bought homes at the height of the market with record low interest rates, but I for one am hoping the interest rates go up substantially. Only then are we going to see a return to both reasonable home prices and a gain on our investments that are hinged on factors other than the housing market.

Salt and Vinegar
With a flat housing market, high unemployment, and little inflation - hopefully the Bank of Canada sticks with common sense and keeps interest rates constant through next year, rather than raise rates and murder the fragile economy.

Al in Sandy Hook
As in past Canadian housing "bubble bursts", it was only Vancouver or Toronto where are prices are over inflated to begin with that were affected. So in reality, who cares?

shaun
I went ahead and did this crazy thing a few years back. Despite its obvious primary function as an invetsment tool, I went ahead and bought a house to live in.

AM
Last week CTV.ca ran an article quoting real estate agents on how great the housing market is, especially in million dollar plus homes.
Now a few days later, we are in a slump.
Obviously no one in the industry knows what they are talking about, so why we should even listen is beyond me.

Greg
The housing collapse seen in the states will be seen here in the next few years. We have not avoided it, we have simply put it off with stimulus. The world can simply not sustain the monster we as mankind has built and it will all crash soon enough.

TC
Home ownership is a smart way to build equity when done prudently. I sure hope that the strong real estate market is a sign of home owners feeling confident of the economy.

Vahan
I have been told by a wise old man and this was to warn me about the stock market and what I should be ready for, yet I believe it applies to owning a home too. He said, kid, there are three definite things with stock prices, they could either a) go up b) go down and c) stay the same. If you know what to expect then you are ready to jump in and invest, but these are three hard and fast rules.

eddytoronto
Deficits And Stimulus Only Delay The Inevitable Collapse .... North America is insolvent and has been so for a long time, and these games of massive deficits, stimulus and quantitative easing only delay the inevitable deflationary depression and economic and financial collapse, which has been deliberately created .....The Fed will create $2.5 trillion a year for the next three years and perhaps longer.....Europeans are finally realizing they cannot bail out six countries for more than $4 trillion without pushing themselves into insolvency....Lol.....Contagion is doing its work and it is only a matter of time before the dominoes fall.....Italy and Spain are the real linchpins. If they default everything collapses......What we are seeing is an attempt of government to avoid obligations. The Constitution is not optional, it is the law.....