Canada's Housing Bubble

Mar 15, 2010 calgaryherald.com

Toronto -- Sales of existing homes in Canada dipped for a second straight month in February, but remained high on a year-over-year basis, as the market may be moving into more balanced conditions, data showed on Monday.

The Canadian Real Estate Association (CREA) said a total of 42,799 homes changed hands last month, down 1.5% from January, as a large gain in sales in Toronto were offset by declines in Vancouver and other British Columbia housing markets.

The real estate group said the Winter Olympics, which were held in the host city of Vancouver and nearby areas, may have played a factor in lower sales in the province last month.

Unit sales in British Columbia were down 13.3% in February from January, compared with a 3.3% advance in Ontario.

Across Canada, sales rose 44% from the same month last year, a smaller gain in national activity from the previous three months. This was in line with economists’ views that year-over-year comparisons are likely to shrink in coming months because the recovery of the housing market started in February 2009.

“Housing markets are becoming more balanced,” said Gregory Klump,” CREA’s chief economist.

After a relatively short spell of low consumer confidence during the global financial crisis, Canadian homebuyers were quickly back in the market and have made the housing sector one of the cornerstones of the domestic economic recovery. The pace of the rebound has encouraged debate about a housing bubble.

But with rising supply -- new listings rose for a fifth straight month, up 2.4% -- it could take the steam out of the housing markets as the year goes on, said Mr. Klump.

Ultralow interest rates could further prompt home resales this spring before the arrival of new mortgage rules in April and changes to provincial sales tax regimes in British Columbia and Ontario, before cooling in the second half of the year.

“We should see the Canadian housing market move slowly back into a balanced-market position as higher mortgage rates and prices begin to temper demand,” said Millan Mulraine, economics strategist at TD Securities.

CREA said the national average home price in February rose 18.2% from a year earlier to $335,655 (US$329,074)

© Thomson Reuters 2010