Too soon to talk bubble

Accelerated activity in the housing market is part of the natural flow of economic recovery, according to the Bank of Canada and housing economists working to deflate theories about a new housing bubble that could drive the Canadian economy back into recession.

Accelerated activity in the housing market is part of the natural flow of economic recovery, according to the Bank of Canada and housing economists working to deflate theories about a new housing bubble that could drive the Canadian economy back into recession.

The Bank of Canada indicated it was premature to be talking about a housing bubble in Canada in a speech delivered Monday by bank official David Wolf. His remarks came after months of highlighting the danger of Canadians getting in over their heads in purchasing homes.

“Recent house price increases do not appear to be out of line with the underlying supply/demand fundamentals,” Wolf said. “We see the housing market requiring vigilance, not alarm.”

Wolf said the bank considers the current hot market to be a phenomenon based on temporary factors, such as pent-up demand from the recession, and low mortgage rates.

Moreover, he noted that with starts below long-term demographic requirements, the number of houses on the market is still declining.

The Canadian Real Estate Association reports housing prices increased about 4.4 per cent over the first 11 months of 2009, and predicts a further increase of 4.7 per cent in 2010.

The association’s chief economist, Gregory Klump, said the year-over-year increase has been “turbocharged” by today’s strong market and the weak year-ago market, which skews average prices. The increase is part of natural real estate cycle, he added.

“One would expect that when the worst of a recession is behind us and we’ve got emergency low interest rates, that would draw buyers back to the market,” he said. “A lot of the supply that moved to the sidelines is coming back to the market and is expected to continue to come back, making for a balanced market and smaller price increases going forward.”