Is Canada’s housing market bubble beginning to deflate?


Now we are reading a welcome news from Canada. The supply of houses on the market is beginning to increase which if it were to continue on this path would signify that Canadian housing bubble is being pricked as we speak and should provide a spectacular deflation in the months and years to come.

This is how it started in USA back in 2005. First supply of houses rose while the prices continued to inch upward. But then the supply really began to accumulate as more and more fools started to put their properties on the market sensing that it was time to get out. We know what happened next.

And now in Canada we are beginning to see the same kind of trends. They, of course, still continue talking about how real estate prices never go down, and that the rising valuations are based on fundamentals and that Canadian economy is strong and getting stronger. But we now know that this is precisely the bubble talk you hear at the top of many speculative markets throughout history.

The Globe and Mail. March 15, 2010.

Influx of listings set to cool resale housing market.

After a historic runup in prices, the Canadian resale housing market is set to cool down as a wave of new listings hits the market, providing badly needed inventory for hungry buyers.

The number of homes on the market nationally increased for the third consecutive month in February on a seasonally adjusted basis, according to the Canadian Real Estate Association. The industry group said Monday there were 4.7 months of inventory available in Canada in February, up from 4.5 months in January.

That trend has put buyers and sellers in an equilibrium not seen since before the market downturn began about two years ago. The ratio of new listings to sales, an indicator used by analysts to gauge the health of the resale housing market, left the “favourable to sellers” range to the “balanced market” range in February, according to National Bank Financial.

It’s a sign of stability for a sector that has seen wild price appreciations as buyers competed ferociously for the few homes on the market.

“Further expected supply increases will continue to take the steam out of housing markets as the year progresses,” said Gregory Klump, chief economist at the Canadian Real Estate Association. “There are still a number of major markets where sales negotiations favour the seller due to a shortage of inventory, but supply has begun rising.”

More listings help prevent bidding wars and could slow house-price gains this year. The association expects prices nationally to decline slightly next year.

Still, some major markets such as Toronto and Vancouver will be slower to add listings this year, industry officials said.

“You still see a supply shortage in the big centres because the people who need to sell and move up just don’t see anything they want to buy,” said Phil Soper, president of Royal LePage. “But we’re ahead of the curve on new listings in February, and March will be absolutely critical if that trend is to continue.”

The Monday following Ontario’s March Break is traditionally the busiest listing day in Canada, as the weather turns favourable and parents who will need to relocate their children realize the school year is coming to an end.

“That’s the day everyone puts on their game face and gets chopping,” Mr. Soper said. “It happens every year – it’s like the summer blockbuster season.”

The busy spring will have consequences, however. Many of the homes will be put on the market earlier than in other years as owners look to cash in on the hot market. The flurry of activity is expected to dampen sales in the last half of 2010.

“I think we’ll see a sharp up-tick in sales, followed by a massive pullback,” said TD Bank economist Millan Mulraine. “We’re taking sales from the end of the year and moving them up. Then you should see a market that is more in line with fundamentals.”

In the meantime, the number of home sales continued on a tear in February with a 44 per cent year-over-year gain from recessionary lows a year ago, CREA figures showed.

The average price of all homes sold on the Multiple Listings Service in February was $335,655, up 18.2 per cent from a year ago. The relentlessly strong price gains since last year’s lows have fuelled worry about the formation of an asset bubble.

Finance Minister Jim Flaherty is watching the country’s mortgage market carefully but does not believe there is a housing bubble, he said in an interview with Bloomberg.

Anything that helps prices stabilize would be a welcome development for policy makers, who are taking steps to make it more difficult to qualify for a mortgage in a bid to cool off the market.

While more listings are expected this year, buyers are expected to be out in full force for the foreseeable future.

Buyers are expected to rush into the market in the coming months to avoid changes to mortgage application rules in April, anticipated higher interest rates by midsummer and the introduction of harmonized sales taxes in Ontario and British Columbia in July.

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3 Comments

  1. artisuseless
    Posted March 25, 2010 at 2:34 pm | Permalink

    I hope so. It’s just getting stupid here.
    Garth Turner in Canada has a great site called Greaterfool.ca that follows this. There’s also a blog called whispers from the edge of the rainforest and americacanada.blogspot.
    I’ve been calling a bubble for years, especially in Vancouver where crackhouses in lousy neighborhoods go for well over $600K but everyone there blathers about how it’s paradise and there’s an infinite supply of ‘rich Chinese’.

    • Posted March 25, 2010 at 9:37 pm | Permalink

      Importing Chinese by the millions is sure way to turn Canada into a third world country. You cannot have a decent society with so many non-Europeans living in your country. Just look at what has happened to USA. It is fast collapsing.

  2. Posted May 14, 2010 at 11:59 pm | Permalink

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