|
Canadian existing home
prices are now rising at a pace not seen in 20 years, fueling talk that a bubble
may be forming in the market.
The average price of a
home sold last month was $341,079, a 20.7% increase from a year ago, the
Ottawa-based Canadian Real Estate Association said Monday. Sales also continued
to climb with 42,288 units trading hands, a 41% jump from October, 2008.
At the same time that
demand continues to surge and interest rates remain at historic lows, supply
remains critically low. New listings last month in the country’s 25 largest
market were off 16% from a year ago.
“I don’t think it’s a
bubble yet,” said Doug Porter, an economist with Bank of Montreal. “The
rapid-fire rebound in Canadian housing is showing no sign of letting up. While
that may be causing some sweaty palms among bubble-phobes, the quick turn is a
vivid illustration that monetary policy still works in this country.”
Mr. Porter says large
markets are skewing average prices, creating a national picture that might seem
more buoyant than it is in reality. Toronto,
the largest market in the country, saw a 20% increase in price last month from
year ago. In Vancouver,
the most expensive market in the country, sales were up 170.8% from a year ago.
“There is a little bit of
magic in the way they put these numbers together,” said Mr. Porter,.
Derek Holt, senior
vice-president of economics at Scotia Capital, called what’s happening in the
marketplace today a once in a lifetime situation. He says record low interest
rates, tight supply, a favourable lending environment and government stimulus
program have all helped stir the housing pot.
“It’s more the medium
term, two three years, where we could get into headaches potentially,” said Mr.
Holt. questioning whether consumers buying today are ready for interest rates
that could be three to four percentage points higher by 2011.
Real estate author Garth
Turner said the latest figures prove his thesis that Canada is now in a real estate
bubble. “We got this type of growth in sales and prices in the middle of a
recession. The latest GDP numbers show the economy actually contracted,” says
Mr. Turner.
A new study from the
Canadian Association of Accredited Mortgage Professionals released yesterday
shows Canadians are benefitting from the lower interest rates. The average
mortgage rate negotiated in the past year was 4.55%, a decline from 5.41% a
year ago.
“Clearly people are
thinking the worst is behind us and that comes as we have record low rates,”
said Jim Murphy, president of CAAMP. “If rates were to spike dramatically,
there could be some concern but we just don’t see that.”
Gregory Klump, chief
economist with CREA said while the latest numbers appear dramatic they have to
be kept in context. “Activity in the early part of 2009 had fallen to a decade
low. With improvement in consumer confidence and interest rates, sales activity
was expected to respond.,” he said.
Mr. Klump suggested
prices will ease up as seller’s start to take advantage of higher prices.
However, CREA is now predicting prices will rise 4.2% this year after
suggesting they would only increase by 1.5%.
Michael Polzler, executive
vice president of Re/Max Ontario-Atlantic Canada Inc., said he’s been expecting
these type of price increases. “Last year at this time, everything just
stopped. They were very realistic example of where everything was it,” he said.
“Now we are just back to kind of normal. You are going to see these type of
numbers continues into the spring because we are comparing them to last year.”
Housing
starts continue to defy gravity."
|
