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BMO Chief Economist Douglas Porter isn’t mincing words about Toronto real estate today.

“Let’s drop the pretence. The Toronto housing market — and the many cities surrounding it — are in a housing bubble,” he warned in a note emailed to clients this morning.

Porter acknowledges that pinning down when exactly a market heads into bubble territory can be tricky. Not everyone shares the same definition of a bubble (although there is an index that tries to measure them).

“But most can agree it’s when prices become dangerously detached from economic fundamentals and start rising simply because people believe they will keep rising strongly, encouraging more buying,” he continues.

And this, Porter suggests, is what’s going on in Toronto’s piping-hot housing market now. The economist, who not so long ago took shots at observers who wrongly predicted a Canadian housing market crash in the past, follows up his use of the B-word with a number of recent statistics.

Each suggests the market is overheating.

For January, the benchmark price of a Greater Toronto Area home was up 22.6 per cent from a year ago, according to the latest reading of the Canadian Real Estate Association’s home price index.

Price acceleration outpaces both inflation and wage growth by 21 percentage points. And you’d have to go back to the late-’80s to find comparable gains, and that’s “a period pretty much everyone can agree was a true bubble,” Porter adds.

There’s also the sales-to-new listing ratio, which was a seasonally adjusted 93.5 per cent in the GTA last month. The ratio — that’s monthly sales divided by listings brought to market and expressed as a percentage — is a leading indicator of how hot a market is.

The GTA’s latest ratio suggests resale residential properties are getting snapped up almost as quickly as sellers are bringing more listings to market.

Generally, a ratio above 60 per cent indicates a seller’s market, and surrounding Ontario markets Hamilton, Kitchener and the Niagara region boast ratios above 100 per cent, Porter notes.

Realtors and the building industry have repeatedly stated that a fundamental supply shortage is to blame for vertigo-inducing home prices in the GTA, but Porter addresses this argument as well.

“We would remind that housing starts in Toronto and Vancouver have been chugging along at almost 70,000 units per year recently, an all-time high,” he states.

And the supply narrative really doesn’t hold water when looking at the condo market. On a year-over-year basis, Toronto condo prices are surging by nearly 20 per cent, yet “supply constraints are not a major issue” for the condo segment, Porter notes.

“No, the massive price gains are being driven first and foremost by sizzling hot demand, whether from ultra-low interest rates (negative in real terms), robust population growth, or non-resident investor demand,” he says.

“Toronto and any city that is remotely within commuting distance are overheating, and perhaps dangerously so.”

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