Cliff Peskin

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Feb 20, 2010

You don’t have to believe me but I’m just going to put this on the table; there is no housing bubble and prices have not increased by 20% across Canada.


I’m not going to provide an elaborate explanation for my statement, I’m just going to give a couple simple thoughts that shape my perspective:

1. Housing Bubble Metric is Flawed: Concern of a housing bubble is based on the phenomenal house price increases reported by the Canada Real Estate Association. Most recently, they’ve reported a 20% increase in house prices across Canada. Twenty per cent!! That’s a Hell of a lot of per cent.

What the media, analysts, government and CREA fail to mention is that this number is not representative of the increase in housing values but only the average price of houses selling in a particular month. A more reliable measure of the increase in housing values is formulated by Teranet’s House Price Index which reports more modest home appreciation such as 4.6% for the city of Toronto, 1% for Vancouver and -2.10% for Calgary. I must add that these figures are reflective of Nov 2009 as opposed to CREA’s Feb 2010 figures but nevertheless CREA’s numbers are most likely inflated.

2. Misleading Comparison: The 20% figure is a comparison of home prices today to home prices in the depths of Canada’s short lived real estate crash. We’re all familiar with the several month period in early 2009 in which little was selling and in which sellers were radically slashing prices. Individuals purchasing homes today are especially well acquainted with this period referred to as ‘the time they should have bought’. My point is that obviously there is going to be a significant difference between now and then. A more valid comparison would be between Canada house prices today to that of mid 2008 in which there is not nearly as profound a difference.

3. Canada Immigration Requires 100,000 New Homes Per Year: That’s a lot of homes for a lot of immigrants. If Canada fails to produce this many homes there will be a shortage of housing, pushing prices up higher. A significant decline in the number of low-rise construction starts versus that of highrise explains how Toronto’s condo boom may be far from a condo bubble. Home purchasers are simply opting for high rise instead of low rise and developers are facilitating the trend by sticking condos in every parking lot in the downtown core.

And so, I don’t believe we’re in a bubble and I think the hotness of Canada Real Estate slightly exaggerated. When Teranet’s House Price Index reports a 20% price increases between summer 2010 and summer 2008 I’ll be more inclined to believe in a bubble. Until then, I’m not scared of the Boogie Man Bubble.

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