Anecdotal evidence from newspapers (a recent NY Times article on Toronto affordability) and online blogs like Zero Hedge would have you believe, if you like to keep a handy list of financial bubbles around the house like I do, that Canadians have lost their minds, and are in the midst of a housing bubble. But the fact is that the numbers just don’t bear this out.
To get a financial bubble, especially one in housing, you need to have a lot of loans collateralized by rising home values. Growth in residential loans remains historically anemic at around 6% at a national level. Looked at over longer periods of time, mortgage loan growth looks to be in slow decline. Sorry. No bubble here.
(Data from Cansim & Teranet)
Rising prices should also be incentivizing real estate developers to build new homes or to fix existing houses for an easy flip. But, Canada’s housing permits and housing starts growth have gone nowhere for 6 years. Sorry. No bubble.
As you can see in the last chart, there is really only frothy price behavior evident in two Canadian cities: Toronto and Vancouver. If you live in Montreal, Quebec City or Halifax, your home value has only kept track with broader Canadian inflation. While if you live in an oil-producing city like Edmonton, Calgary or Winnipeg, you have made about 10% on your home over the last two years. Hardly the 60% and 80% appreciation that has happened in Vancouver and Toronto respectfully. Sorry. No Canadian housing bubble. Put another way, housing appreciation in NY and LA is not indicative of the US as a whole. Same holds here. Canada is not merely Toronto and Vancouver.
