“True, real home prices have had a terrific run for more than a decade. But, that followed an equally long period of fallow. For example, after-inflation national average home prices have risen 76.7 per cent since the first quarter of 2002, an annualized increase of just under five per cent,” Douglas Porter, chief economist for BMO writes in the bank’s latest weekly report. “However, in the period from 1990 up until 2002Q1, real home prices had actually declined 6.4 per cent —that is, real home prices made zero headway for more than a decade, arguably laying the groundwork for a lengthy run.”
When combining the two periods, Porter points to moderate 2.1 per cent price growth since 1990.
“Toronto home prices have run a bit hotter in recent years, partly due to provincially mandated land constraints,” Porter states. “But even GTA real gains have been unremarkable, especially when compared against the incredible boom of the late 1980s and the incredible bust of the early 1990s.”
To further his argument, Porter draws parallels between Canada’s hottest markets and comparable markets around the world.
"Yes, Vancouver is one of the priciest cities in the world, but it shares many of the same attributes as like-priced cities (Sydney, Hong Kong and San Francisco)," Porter writes. "Further down the scale, prices in Toronto=New York, Calgary=Washington, and Montreal=Chicago, none of which seems wildly out of line (although we won’t deploy the “similar attributes” reasoning with these city pairs)."
One major economist has begun sympathizing with Canadian housing pessimists, though he isn’t ready to join their ranks just yet. Will brokers agree with his reasoning?