TD Warns of Potential Housing Bubble in Western Canada
TD warns of potential for housing problems in West
By Ottawa Business Journal Staff
Thu, Aug 31, 2006 1:00 PM EST
Housing activity in Central and Atlantic Canada has cooled down without prompting a price correction, but select cities in Western Canada are "flashing warning signs" that suggest the recent pace of price gains has been unsustainable.
That's the conclusion of TD Economics latest "Housing Bubble Watch" report.
"Canada's real estate markets appear to be in good shape and market conditions are becoming more balanced. Key exceptions are Vancouver, Calgary and Edmonton," says TD's deputy chief economist, Craig Alexander.
"The recent dramatic price gains in Calgary and Vancouver are unsustainable over the long-term, and both cities are vulnerable to significant moderation. Edmonton is also experiencing explosive price growth, but affordability remains surprisingly good."
While sales of existing homes are poised to set another record, Mr. Alexander cautions that regional developments are distorting the national story. Resale home prices rose 12.9 percent in the second quarter of 2006 from a year earlier, but excluding Alberta and British Columbia, the average rise in resale prices across the other provinces was a more moderate 7.3 percent. Alberta is responsible for almost half of the gain in the national average of new home prices.
"The dominant trends in housing markets outside of the West have been weaker unit sales, greater new listings and more moderate price growth - all of which point to more balanced market conditions and declining real estate risks."
In Ottawa, Mr. Alexander notes the pace of resale home prices has slowed, dropping from a 6.2 percent year-over-year increase in April to 1.4 percent in July. This can be partly explained, he says, by an increase in new home construction, which has put a damper on price growth.