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RE/MAX West Realty Inc., Brokerage Independently owned and operated

Are we in a housing bubble?

June 20, 2012


Are we in a housing bubble?

Stephen Dupuis, president and CEO of the Building Industry and Land Development Association (BILD) wrote an article in the New Homes Guide magazine in January of 2011 in which he describes his experiences during an event in a room filled with industry experts. Here are some quotes from his article.

“I sat with my colleagues prior to the panellists’ presentations, we struck up a conversation spawned by one simple (and very appropriate) question: What is a housing bubble, anyway?”  A concrete answer should have been produced almost instantly. Surprisingly enough, no one at my table had a clear answer.”

“While we did eventually agree on a definition, by then the conference had started and the first order of business by moderator Brian Johnston of the OHBA’s Economic Review Committee was to offer a definition of the term “housing bubble”, much to my surprise. The definition spawned from a source called Wikipedia, which lately has been more accurate than most dictionaries, and labels a housing bubble as rapid increases in valuation of real property until they reach unsustainable levels relative to incomes and other economic elements, followed by a reduction in price levels.”

“While housing prices have been on the rise since the economic hardships of 2008, I think ‘rapid increases in valuation’ is a bit harsh, considering the fact that the surge in the market activity can largely be attributed to buyers looking to beat the HST and new mortgage regulations. Price growth has moderated, and according to a recent report released by the Royal Bank of Canada, the GTA’s housing market is showing improved affordability in the third quarter. Not only does that point strike the possibility of ‘reaching unsustainable levels’ off the list, but it actually points to signs of a stabilizing healthy market.”

“The final point in the definition references a reduction in price levels. I can only assume that this implies a massive slide, which probably sounds pretty absurd after reading the paragraphs above.”

Pascal Gauthier of TD Bank Financial Group expects growth in Ontario to be pretty subdued in 2011 with a 1.5 to 2 % increase. (We have already seen a 6.5% increase) Douglas Porter of BMO Capital Market was on the same page.  (Also wrong.) 2010 was not what bubbles are made of. 2011 and 2012 are not and will not be what market crashes are made of either.

I would suggest that the Toronto area market is a very healthy and viable real estate market. Here is a chart to back up my evaluation of the market conditions in Toronto.


Tagged with: economy
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