According to the Canadian Centre for Policy Alternatives (CCPA), Canada is experiencing a housing bubble that is destined to pop. In a recently released report, the non-profit research group examines house price growth in six Canadian markets and puts forward a few scenarios of how prices might be affected when the bubble bursts.

Canadians are becoming increasingly concerned that, like our neighbours to the south, there may be a housing bubble in Canada.

While the prospect of a bubble has been downplayed by the Bank of Canada, a number of economists have warned that Canada’s housing market is overvalued, which is bankers’ conservative way of suggesting a housing bubble may be afoot.

The CIBC warns a housing correction is in the cards, which is a milder alternative to a full- blown bubble bursting — though there are signs of trouble on the horizon.  For instance, the OECD finds Canada has the highest consumer debt to financial asset ratio among 10 OECD countries, including the U.S.  The Canadian Association of Accredited Mortgage Professionals estimate about 375,000 mortgage holders in Canada are already challenged by their current payments and may not be able to handle higher rates.

Read the CPPA report titled, Canada’s Housing Bubble – An Accident Waiting to Happen here.

Hot on the heels of CPPA’s report, the C.D. Howe Institute releases its own analysis of Canadian housing market and concludes that there is “little likelihood” of a US style housing crash occurring in Canada.

To evaluate the likelihood of a US-style housing market crash in Canada, one first needs to understand what caused the US housing boom and bust. As argued elsewhere, the Canada-US comparison suggests that a decline in underwriting standards played an essential role in the US housing market boom and dramatic bust. While monetary policy was very similar in both countries from 2000 to 2008, housing markets (especially the subprime component) were structured and regulated somewhat differently in each. Unlike in the US, the Canadian subprime market never expanded significantly into newer products, such as interest-only or negative-amortization mortgages, whose popularity grew rapidly in the US from 2003 to 2006. Moreover, while subprime lending increased rapidly in both countries over 2000 to 2006, the Canadian subprime market remains much smaller than that in the US, as subprime lenders accounted for roughly 5 percent of mortgage originations in 2006 – compared to 22 percent in the US (Mortgage Architects 2007).

Mortgage delinquencies support the key role of underwriting standards in what transpired. While mortgage delinquencies began to climb before the recession in the US, they only began to rise in Canada after the economic slowdown began. Moreover, the decline in Canadian house prices between August 2008 and April 2009 did not result in a large increase in mortgage delinquencies.

Read the C.D. Howe Institute's report, Not Here? Housing Market Policy and the Risk of a Housing Bust here.

I’m always happy to answer your Saskatoon real estate questions.  All of my contact info is here. Please feel free to call or email.

Norm Fisher
Royal LePage Vidorra

The Saskatoon Region Association of REALTORS® (SRAR) released the residential real estate statistics for August of 2010today, accompanied by this release.

Saskatoon REALTORS® assisted 313 buyers with the purchase of a home in the month of August. This number was down 20% from August 2009when 392 homes were sold. Year to date, 2527 homes have changed hands, down 6% from 2009 when year to date numbers stood at 2696. The increase in new home sales has somewhat impacted the resale market.

Click the image for a larger version of the graph.

Increased sales activity in the mid to upper price range homes contributed to the 8% rise in the average selling price in August which stood at $305,866. The average selling price in August 2009 was $282,320. The year to date figure stands at $292,323, up 5% from 2009 when it was $278,193. The highest sales activity remains in the $300,000 to $350,000 price range.

Click the image for a larger version of the graph.

645 properties were placed on the market in the month of August, up 25% from August 2009 when 517 homes were listed. The year to date listing number stands at 5033. Home buyers had 1355 homes to select from at the end of August, on par with last monthwhen 1334 homes were for sale.

Click the image for a larger version of the graph.

In areas surrounding Saskatoon (Warman, Martensville, Delisle, etc.) unit sales were down 6% with 90 properties selling as compared to the same month last year when 96 homes sold. The average selling price was $259,338, down 4% from August 2009 when it was $270,488. Listing numbers were up 25% in the areas around Saskatoon with 248 properties being listed compared to 199 in August 2009.

Residential sale numbers are expected to remain on par or soften slightly for the remainder of the year. Interest rates are favourable, confidence remains strong in the local economy and new home sales continue to build momentum. These are all necessary components to maintain a stable market environment.

I’m always happy to answer your Saskatoon real estate questions.  All of my contact info is here. Please feel free to call or email.

Norm Fisher
Royal LePage Vidorra