Canada's Housing Bubble

Apr 11, 2010 Lisa Schmidt Calgary Herald

Despite rising mortgage rates and surging home prices, Charmaine and Everett Buhler didn't hesitate to make an offer on a house in Varsity.

After an 18-month search, the Calgary couple snapped up the home the same day they looked at it.

"This house was maybe something we might have considered a couple years down the road, but it just came up at the right time and it was a good price for the area," said Charmaine.

"Interest rates are still such a good deal. To us, it wouldn't hold us back from buying."

That sentiment is echoed in a new survey that shows a majority of Albertans are still confident about home-buying.

Nearly two-thirds of consumers think now is a good time to purchase a home, according to the latest PricewaterhouseCoopers survey, conducted by Leger Marketing and provided to the Herald.

That comes as they also expect interest rates will rise. Many banks have hiked mortgage rates half a percentage point in advance of expected broader rate increases by the Bank of Canada this summer.

Homebuying continues to be the strongest index in results that show overall consumer confidence remains cautiously optimistic.

The survey responses translated into a housing index of 143. An index above 100 reflects an optimistic sentiment.

That was down a couple notches from January, which may signal consumers aren't feeling any urgency to buy ahead of rising borrowing costs, said Ian Gunn, Calgary-based partner and leader of PwC's private company service practice.

Despite a gradual decline since peaking at 147 in November, the index is more than twice the lows reached in early 2007, when home prices were soaring.

"You weigh all factors, this is a very strong indicator that supports that confidence in the marketplace," said Gunn.

Calgary's housing market has rebounded from last year's lows, when the recession chilled demand.

Single-family home sales were nearly 30 per cent higher in March than a year ago, while sales of condominiums are up 37 per cent, according to the Calgary Real Estate Board.

A report by Royal LePage last week shows city home sale prices, on average, are running about 10 per cent ahead of last year's levels.

The surge in prices -- and pockets of even larger spikes in some neighbourhoods -- is a result of far fewer listings on the market and more buyers on the hunt, said Ted Zaharko, a broker with Royal LePage Foothills.

"Fourteen months ago, when there were 12,000 listings on the market, you didn't see any spikes," he said.

"Today it's around 3,000 -- it's just not enough."

There's also been a surprisingly strong jump in building permits for new homes in Calgary, another sign of future housing demand.

"It's interesting to see developers obviously still do see some upside," said Dan Sumner, economist with ATB Financial in Calgary.

Other homebuyers said the timing of their homebuying decision is a result of their personal situations.

First-time homebuyers Aliah and Kyle Knopf are relocating from Edmonton after Kyle landed a job here. The couple also needs space for their growing family. Their first child is due in a couple of weeks.

Aff ordability is an issue, said Aliah, and the house search so far has been a little discouraging.

"The market's pretty daunting for first-time homebuyers," she said. "We're looking at $400,000 or more for a home, which is more than we were expecting at this point."

Even at that price level, homes for sale often need a lot of work or major updating, she said.

"That's a little bit disheartening," she said. "It's tough when you are looking at spending that much money."

The survey, conducted between March 15 and 23, also found consumer and business confidence remain positive.

Overall, the consumer confidence index dropped slightly to 110, the same level as one year ago.

"It is trending back down, which may be an indicator of some conservatism from consumers," said Gunn of PwC.

"There may be a nervousness around. 'Are we really out of it; is there a correction to come that they haven't the confidence to see beyond the next few months?"

Other highlights of the survey include:

-The overall business confidence index held steady at 115, its highest level since the survey started in February 2007.

-Businesses were most optimistic about the job market, reaching a high of 156 in March.

-Consumers also expected a lower unemployment rate in 12 months, with the index now double year-ago levels.

-Consumers were less sure of future household income and making major household purchases.

The survey polled 900 Albertans. It also conducted an online survey of 237 Alberta business leaders.

The margin of error is plus or minus 3.3 per cent, 19 times out of 20.