Analysts Discuss

By Gary Marr, National Post

What a difference a year makes. Last November, the economy was said to be on the verge of the next Great Depression, sucking the life out of a housing market that was coming off a record year in 2007.

Flash forward 12 months. The Canadian Real Estate Association said this week resales were up 73% and prices up 19% in November from a year ago. The fear now is that the housing market is too hot, stoked by record-low interest rates.

Among economists, the talk is of a bubble forming. David Rosenberg, chief economist with Gluskin Sheff & Associates, suggested housing values are 15% to 35% above the level they should be at, based on such fundamentals as personal income and residential rents.

Comment: I would love an explanation as to how “normal” housing values are calculated. At least here they tell you what it is based on, but how is it worked out? Sure, houses cost more per unit of income than they did in our grandparent’s time, but so do a lot of things. Cars routinely cost $30-40,000 now, a lot more than the $965 sticker price in 1923. Does that mean the car industry is overpriced and in danger of forming a bubble? Okay, the car industry may not be the best analogy… but you get my point.

Bank of Montreal’s Douglas Porter, a reluctant addition to the bubble ranks, was hedging his bet. “We’re on the bubble of a bubble,” said Mr. Porter, who is worried there will be a stampede to buy homes ahead of a bank rate hike that could come as early as July 2010 and the July 1 implementation of the harmonized sales tax in British Columbia and Ontario.

“We could see a bit of a buying frenzy this coming spring … followed by a ‘pop’ in 2011.”

One real-estate industry veteran, who asked not to be identified, wonders whether economists are now calling for a crash to grab headlines. “They are all piling on the bubble story now.”

Comment: I am willing to be indentified and I have been saying this for years now. It is all about getting your name in the paper for screaming that the sky is falling. It is about terrible headlines selling papers. But we have heard a lot of this for about 6 years now, maybe not the same tune, but the condo market was supposed to collapse some 5 years ago now. According to the experts. Yup.

On the surface, the national statistics do look sensational but Canada’s most expensive markets skew the numbers.

Greater Vancouver had a 252.7% increase in sales last month from November 2008, but a year ago there were a paltry 874 sales. Last month’s sales in Toronto were almost double that of a year ago, but were down from October.

Comment: And what were Vancouver’s sales in November of 2007? And Toronto’s sales last month were almost the same as in 2007. Perspective, people.

Peter Vukanovich, president of Genworth Financial Canada, which controls about 25% of the country’s mortgage-insurance market, was more emphatic. “There was nobody buying anything a year ago.” He fails to see a bubble forming.

Comment: Thank you! A voice of reason!

Rates continue to drive the market, Mr. Vukanovich said, noting a large majority of his clients have been switching to fixed-rate products, leaving them less exposed to rate hikes.

As well, for the second consecutive month, new listings are up 5% from a year ago, although still not enough to meet buyer demand. Inventory is at its lowest in two years.

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Contact Laurin Jeffrey for more information  –  416-388-1960

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