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A national Canadian newspaper and one of Canada’s biggest banks are butting heads over Toronto real estate.

Yesterday, Ian McGugan, senior editor of the Globe and Mail’s Report on Business, took a number of Canadian banks to task for only stating the city’s housing market was in a bubble recently.

“Just a few months back, bank economists were still ferocious contenders in an unofficial contest to offer the most reassuring voice on soaring Canadian home prices,” writes McGugan in a column titled “Banks Spot Evidence of a Housing Bubble. What Took so Long?”

Well, BMO Chief Economist Douglas Porter has an answer today. In a scathing note, he addresses why he waited to call the market a bubble in mid-February and no sooner.

“Until one year ago, the Toronto housing market was consistently strong, but not exceptional,” writes Porter under the snarky headline “Bubble Brigade Bandwagon.”

Over the 15-year period leading up to that point, Greater Toronto Area home prices averaged annual gains of 6 per cent — “even with the wild gyrations in 2008-10,” Porter notes, providing a chart.


“A year ago, something changed in a very big way,” Porter explains.

That something was an influx of foreign investment hitting the market, he suggests.

The Globe’s McGugan, however, insinuates banks’ interests were the real reason they would hold off on using the “B” word (Scotiabank’s CEO Brian Porter said earlier this month Toronto’s market is headed for a correction).

“If it was not for the well-established fact that Bay Street economists are all scientists engaged in the clinical pursuit of truth, one might have been tempted to wonder if their employers’ huge mortgage businesses were a motivational factor in their opinions,” the newspaper man sarcastically writes in his column (behind a paywall).

But to hear Porter tell it, BMO decided to stay on the sidelines while policymakers rolled out measures aimed at cooling the market this past fall.

In October, the federal government announced tighter mortgage regulations.

One change, effective October 17th, was making those applying for longer-term, fixed-rate mortgages qualify against higher interest rates. Another, which took hold November 30th, was standardizing eligibility requirements for low- and high-ratio insured mortgages.

The latter change meant even those forking over a downpayment of 20 per cent must pass a mortgage stress test, which gauges whether or not a borrower can pay back a loan should interest rates rise.

“With the market steaming through those mortgage insurance changes, only then did it become clear that the market had truly broken away from the fundamentals,” says Porter.

“That simply was not the case prior to 2016, so it would have been dead wrong to call this a bubble earlier in the cycle. That’s why, kind sir, it ‘took so long,’” Porter remarks.

Shots fired.

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