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Canada has seen housing bubbles form — and burst — before, and a recent research note from BMO Senior Economist Robert Kavcic suggests another may be growing in Vancouver.

In the note, titled “Vancouver: The B-Word?” Kavcic points squarely to May home price gains, especially in the detached segment, as a sign of a possible housing bubble.

“The benchmark price ballooned 29.7 per cent year-over-year in the month, and the benchmark detached home is up — wait for it — 37 per cent in the past year,” writes Kavcic.

The benchmark price across all residential property types hit $899,100 last month in Vancouver, while for detached homes it’s now $1,513,800.

This growth is reminiscent of what happened in more than one other Canadian housing market before prices plummeted, notes Kavcic.

“Two past episodes in Canada that most would associate with the B-word — Calgary in 2006 and Toronto in the late-’80s — saw price growth push through 40 per cent year-over-year,” he continues.

“We know for sure both of those episodes ended poorly,” Kavcic adds.

Indeed, from January 1990 to the same month a year later, the average price of a Toronto home plunged 16.9 per cent to $213,217. It would continue falling for several more years as a recession set in.

Calgary too recorded double-digit year-over-year depreciation when its market collapsed nearly two decades later. In January 2009, the average price had fallen 11 per cent year-over-year to $374,619.

In a followup interview with BuzzBuzzHome News, the BMO economist brought up another similarity pre-bust Calgary and Toronto share with the Vancouver of today.

“Both of those (Calgary and late-‘80s Toronto) started off with very strong fundamentals that eventually evolved into something that was running far in excess of those fundamentals,” says Kavcic.

A population boom in Calgary in 2005-2006 and strong job growth fueled home prices there at the time, notes Kavcic.

“But even then, we were getting 30-, 40-, 50-per-cent year-over-year rises in prices that were… at least running in excess of those very strong fundamentals,” he explains.

So it is for present day Vancouver real estate, says Kavcic, who suggests home-flipping, which is when recent buyers try to resell a property for a quick profit, is on the rise.

“At this point it’s looking like we’re going down a road that’s not going to end well,” he warns.

“It doesn’t end overnight. It’s usually a process that runs for a year or two — so it’s not necessarily going to end tomorrow — but it is a warning that we are seeing more speculative activity creeping in the market,” he says.

“That’s going to run this acceleration of prices further and ultimately down the road lead to a worse ending,” adds Kavcic.

It isn’t only the jaw-dropping detached home prices that has Kavcic taking a bearish tone.

“When we’re seeing price growth topping 20 per cent year-over-year and accelerating in the condo market, which doesn’t have the same supply and demand fundamentals that the detached market does, I think it’s pretty clear that we’re seeing prices detach from these fundamentals,” says Kavcic.

“The longer this accelerates the worse the ending’s going to be at the end of the day — whenever that comes,” he says.

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