The government would need to see “clear evidence of a bubble in the housing market” to impose tighter mortgage rules.
“We have not seen (that),” Finance Minister Jim Flaherty told reporters Wednesday.
It would take “dramatic surges in prices in some part of the country” to constitute a bubble, he added.
“We have seen in the past year some softening in the Canadian housing market, in part due to the tightening of the insured mortgage market rules that we did earlier this year… That’s an appropriate result from that tightening,” he said.
The Finance Department has enacted stricter mortgage rules on three separate occasions over the last 36 months. Yet still, prices have risen.
In any event, while not conceding a bubble, Flaherty did acknowledge “unusual” demand in places like Vancouver.
Canada’s average home price (which is skewed by markets like Vancouver and Toronto) stood at $349,916 in August, according to the Canadian Real Estate Association.
That is up:
- 7.7% in the last 12 months (or 6.7% if you exclude “high-priced regions,” says BMO)
- 20% in the last 36 months
- 103% in the last 10 years.
Soaring prices have brought about lots of negative press as of late — much of it localized. Here’s a sampling:
- Some parts of the country are “severely unaffordable” (Mark Carney — Bloomberg)
- “…there is evidence of overshooting in some markets.” (Royal LePage CEO Phil Soper — Canadian Business)
- “Prices have risen twice as fast as incomes in the past decade.” (Economist Sal Guatieri — BMO)
- “Developments on the housing front require increased vigilance, and consideration may need to be given to additional prudential measures to prevent a further buildup in household debt” (IMF)
Despite all this, affordability has stayed within reach on a national basis. (Try not to laugh at that statement if you’re buying in Vancouver or Toronto.)
As RBC economist Craig Wright recently wrote: “By and large, the share of household budgets taken up by the costs of owning a home at current market values remains close to historical norms.” That’s according to RBC’s regularly published affordability measures.
Housing demand and prices are driven by lots of things including employment levels, immigration, housing supply and affordability. That last factor (affordability) has been particularly important in the latest housing cycle.
Affordability provides essential support for lofty prices in the big metros. That’s why materially higher mortgage rates and/or stricter mortgage rules could kick a leg out from under the table.
When that sort of thing happens a soft landing can become a crash. Flaherty realizes that and knows he must tread carefully in future policy making.
Rob McLister, CMT
Last modified: April 29, 2014
The entire GTA is overpriced, not just Toronto. Even if you head up to places like Alliston and Schomberg, houses there have surged in value over the last decade. The people who are escaping to the suburbs from the high prices of the city (and its immediate boundaries) are pushing up the prices even if you live in the middle of nowhere. It’s ridiculous! And Flaherty says there’s no bubble? With all due respect I don’t think he knows what he’s talking about.
How can 9x to 10x or more income to price of a house in Vancouver area be considered normal. This is nothing but speculation and Hot Asian Money. As soon as the HAM dries up watch the price implode there. Simply an unsustainable bubble.
Flaherty, as a the “good” politician he is, didn’t say there was no bubble. He only said there are no “clear” evidence. This opens the door for him to change is mind in the future.
Hi Nicolas, Thanks for the observation. This headline was figurative (i.e., abridged for practical effect) but the distinction you make is certainly correct.
Policy makers constantly reassess changing information. As of yesterday, Flaherty clearly stated that the balance of evidence (as he knows it) does not indicate a bubble. That doesn’t mean the evidence won’t change. Moreover, no one should take his statements to mean he is ruling out a bubble period.
The best answer is, “there could be a bubble, but nobody knows.”
Real estate markets are highly local.
The Toronto real estate market has plenty of legs left.
A Market Bubble could very well happen, and Flaherty is aware of this, hence his careful wording.
But to base the possibly of a countrywide market bubble on the soaring values in places like Vancouver and Toronto is not logical.
Could they suffer a bubble and that spill over? Yes, but considering the national average price being much steadier than those markets, the risk, although is still there, is minimal.
Flaherty stated that Canada would not see a recession in 2008 less than 3 months before the financial crisis started… his “forecasts” aren’t exactly know for their accuracy.
Why doesn’t Flaherty put more restrictions on immigrant home purchases. That would calm the hot asian money and cool the whacked out Vancouver market. Everything else would pretty much stabilize until interest rates go up..