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No Bubble to pop in Canada's Housing Market

Ottawa, March 24, 2014 - Canadian house prices may be headed for a modest decline nationally and in some local markets, but fears of a housing bubble are exaggerated, according to The Conference Board of Canada's initial Housing Briefing: Bubble Fears Overblown.

"Mortgage costs, not just house prices, are the principal deciding factor for potential homebuyers," said Robin Wiebe, Senior Economist, Centre for Municipal Studies. "Mortgage rates are expected to rise this year, but not dramatically, because the Canadian economy remains in a slow-growth mode.

"The housing market may be undergoing a correction in some regions and market segments, but it is more likely to be a soft landing than a bubble bursting."


  • Mortgage costs remain relatively low, which maintains affordability for home buyers.
  • Resale markets in major Canadian cities are generally balanced.
  • A soft landing in the Canadian housing market is the most likely scenario.

Fears of a housing bubble hinge on the ratio of house prices to apartment rents and house prices to incomes. The Conference Board's view is that while these ratios are high, they are also misleading. Better indicators of affordability are the ratio of mortgage payments to rents and mortgage payments to incomes, and neither presents much cause for alarm about a housing bubble.

In addition, Canadian employment continues to increase, albeit modestly, and the national population is growing. In general, housing starts are in line with demographic requirements, and markets do not appear to be overbuilt. Total housing starts in Canadian cities with at least 10,000 residents ended 2013 at just below 170,000 units. Although down from nearly 194,000 starts in 2012, this is in line with Canada's 25-year average.

Furthermore, a low proportion of Canadian mortgages are in arrears. As a result, a market downturn in Canada would not be amplified by a wave of "distressed" home sales, as occurred in the United States in the 2000s.

Over the medium-term, a modest market correction, particularly in market segments in Ontario and Quebec as projected rising interest rates potentially crimp affordability, could produce a moderate decline in the national average housing price.

The outlook provides assessments of six major Canadian markets.

  • Vancouver's resale market moved back into balance last spring. Sales were up briskly from a year earlier in each of the last three months of 2013. Prices are also growing strongly, although the current pace is unsustainable and slower advances are expected in 2014.
  • Calgary's resale market is approaching sellers' conditions. Sales have not fallen on a year-over-year basis since April 2011, and price growth accelerated sharply last year.
  • Edmonton's resale market is balanced. Sales rose briskly in 2013 and price growth is picking up along with sales.
  • Toronto's resale market is balanced. Sales stabilized in June 2013, and rose on a year-over-year basis during each of the six months leading up to the end of 2013. Price growth remains healthy and a major price correction is hard to envision, given solid employment and population growth. While the condominium market is at some risk, a soft landing appears to be the most likely scenario.
  • Ottawa's resale market is balanced. Falling employment is contributing to sluggish resale conditions. Sales were largely flat last year, but prices continue to rise gently. Total housing starts remain soft by historical standards.
Montréal's resale market is flirting with buyers' territory. Sales and average prices were largely below year-earlier levels in 2013. Both single-detached and multi-family starts slowed last year.

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