By Mario Toneguzzi, Calgary Herald August 31, 2010
The report, Canada's Housing Bubble: An Accident Waiting to Happen, looks at trends in house prices in Calgary, Toronto, Vancouver, Edmonton, Montreal and Ottawa.Photograph by: Archive, Calgary HeraldFor the first time in three decades, a "synchronized housing bubble" has spread to six "red-hot" real estate markets in Canada, including Calgary, says a report released today by the Canadian Centre for Policy Alternatives.
The report, Canada's Housing Bubble: An Accident Waiting to Happen, which looks at trends in house prices in Calgary, Toronto, Vancouver, Edmonton, Montreal and Ottawa, says that between 1980 and 2010 increases were "outside of a historic comfort level."
The report says that on average, inflation-adjusted house prices in these cities have historically held stable at between $150,000 and $220,000 in today's dollars but current housing prices in all six major cities are now over $300,000 on average.
"The bursting of housing bubbles is a rare event in Canada but the steep rise in house prices in so many cities displays all the hallmarks of an accident waiting to happen," says David Macdonald, author of the report and research associate with the organization.
The report says that historical trends indicate Canada's hotttest six real estate markets are more unstable than a generation ago, especially after steep house price increases between 2002-2007. Before 2000, house prices tended to hover with a narrow range of between three and four times provincial annual median income. Today, house prices are anywhere from 4.7 to 11.3 times the median income, says the report.
"As house prices rise outside of their historical range they become much more susceptible to mortgage rate changes," says Macdonald. "The hotttest six real estate markets could be in for a correction at best or, at worst, a bubble burst. Rate setters at the big banks are in the driver's seat now as mortgage rates inch up. They need to hit the brakes lightly."
The report says Calgary saw housing prices soar by 198 per cent between 1997 and 2007.
Under three different scenarios, the report looks at the possibility of a market correction through housing price deflation, the possibility of a deeper and longer housing crash and the possibility of a rapid and steep decline.
Under the first scenario, Calgary would see an almost 20 per cent decline in prices from $403,000 today to $325,000 in three and a half year's time. If the bubble burst slowly over a period of time, the report says Calgary would experience at least a 30 per cent drop from today's prices to just over $280,000.
And under the worst-case scenario, Calgary would see a 30 per cent plunge in prices.
© Copyright (c) The Calgary Herald
The report says that on average, inflation-adjusted house prices in these cities have historically held stable at between $150,000 and $220,000 in today's dollars but current housing prices in all six major cities are now over $300,000 on average.
"The bursting of housing bubbles is a rare event in Canada but the steep rise in house prices in so many cities displays all the hallmarks of an accident waiting to happen," says David Macdonald, author of the report and research associate with the organization.
The report says that historical trends indicate Canada's hotttest six real estate markets are more unstable than a generation ago, especially after steep house price increases between 2002-2007. Before 2000, house prices tended to hover with a narrow range of between three and four times provincial annual median income. Today, house prices are anywhere from 4.7 to 11.3 times the median income, says the report.
"As house prices rise outside of their historical range they become much more susceptible to mortgage rate changes," says Macdonald. "The hotttest six real estate markets could be in for a correction at best or, at worst, a bubble burst. Rate setters at the big banks are in the driver's seat now as mortgage rates inch up. They need to hit the brakes lightly."
The report says Calgary saw housing prices soar by 198 per cent between 1997 and 2007.
Under three different scenarios, the report looks at the possibility of a market correction through housing price deflation, the possibility of a deeper and longer housing crash and the possibility of a rapid and steep decline.
Under the first scenario, Calgary would see an almost 20 per cent decline in prices from $403,000 today to $325,000 in three and a half year's time. If the bubble burst slowly over a period of time, the report says Calgary would experience at least a 30 per cent drop from today's prices to just over $280,000.
And under the worst-case scenario, Calgary would see a 30 per cent plunge in prices.
© Copyright (c) The Calgary Herald
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