BMO: Canada real estate market heading for bubble—but not Toronto

BMO: Canada real estate market heading for bubble—but not Toronto

(Image: Rhett Maxwell) 

A new report out from BMO Capital Markets suggests that Canada is in increasing danger of a housing price collapse—especially if prices keep going up. The good news for Toronto is that while other provinces are steadily inching closer to the danger zone, Ontario doesn’t seem to be.

The problem is that the value of homes have increased much faster than incomes. The bank says average home resale prices compared with personal incomes are 14 per cent above the long-run trend, up from last summer, although still below the 21 per cent peak that preceded the 1989 crash.

But that is not the case in all markets. Five provinces are currently in the danger zone, led by Saskatchewan, where the ratio is 39 per cent above historic norms.

Also well above the long-run levels is Newfoundland, 34 per cent higher; British Columbia and Manitoba, 31 per cent, and Quebec, 23 per cent above.

By comparison, in Ontario, the price-to-income ratio is only 10 per cent higher than historic norms, suggesting prices are moderately overvalued but not in bubble territory.

Hurray for Toronto—overvalued against historic prices, but not quite as bad as other places. It’s like we’ve been saying: when the collapse of the housing market comes, Toronto may get hit, but we won’t need to stockpile ammo, canned goods and drinking water.

Of course, this also means Toronto shoppers might be able to pick up real estate in other provinces for a song after the crash. Anyone interested in a waterfront property in Regina Beach?

Home prices nearing bubble territory, but cool-off expected [Globe and Mail]
Canadian housing market ‘moderately’ overvalued: BMO [Toronto Star]
Housing crisis ‘inevitable’ if prices outpace income [National Post]