All is not as it seems in the Canadian housing market, according to one major economist who points to several vulnerable markets that may be lulling economists and the Bank of Canada into a false sense of optimism about the market, overall.
“Canada’s housing market remains healthy and well balanced overall, albeit with sizeable disparities across regions,” BMO Chief Economist Douglas Porter writes in his latest housing analysis, entitled “Canadian Housing: A Tale of 26 Cities. “The major potential flashpoint is that prices in the three hottest cities—Calgary, Toronto and Vancouver—are rising faster than family income, further straining affordability.”
Porter points to several factors that are creating the illusion of a “well-behaved and calm market”; including the 190,000 housing unit start, a sales jump of 1.8 per cent in August, and a 5.3 per cent year-over-year price increase. Furthermore, sales are approaching pre-recession highs. But how much of this data is being bolstered by the few markets that many industry pundits believe is over-valued?
“Meantime, the seemingly calm exterior on sales and prices masks a deepening divide between large cities and small, and West and East,” Porter writes. “On the sales side, almost half the major markets (12) reported declines last month, with double-digit drops in Halifax, Sudbury and Winnipeg. Similarly, so far this year, precisely half of Canada’s cities saw sales drop, with 8 of the 9 cities east of Ontario down, while only 1 of 8 in the west fell.”
The strength of the markets in Calgary, Toronto and Vancouver are the reason the BoC has stopped forecasting a soft landing for Canada’s housing market, according to Porter.
“But we would reinforce the message that talk about the ‘hot housing market is really only a 3-city story,” Porter concludes.