Canada’s housing starts smashed thorough all expectations with week’s report of 244,900 seasonally adjusted annualized rate of starts, up from 214,800 in March, and way passed 202,000 that were expected.
The federal agency, Canada Mortgage and Housing Corp (CMHC) that issued this report dismissed the possibility that these numbers represent a bubble.
“In our monitoring of the condo markets, we don’t see clear evidence of overheating in those markets. We don’t see either clear evidence of problematic house price conditions,” CMHC deputy chief economist Mathieu Laberge said.
Nor do Canada’s banks see the bubble and some say that, actually, housing in Canada is in good shape.
“I think the housing market generally in Canada is in pretty good shape,” Royal Bank of Canada Chief Executive Gordon Nixon said.
Of course, expressing a concern at things that have not happened yet is not a good way to manage the perception of risk a bank has because when the housing melt-down actually happens the perception maybe the only thing that can keep a lending institution solvent.
Government agencies, likewise, also have a stake in remaining blind to the housing correction eventuality because too much labor force is tied up in that bubble.
According to Canada’s magazine Maclean’s, 7.4% of Canada’s labor force is directly involved with the housing and if we add housing related industries like brokers, agents and insurance companies, some 27% of Canada’s employed depend on the bubble.
At the peak of the housing bubble in the US, 23.5% of labor depended on housing.
Canada’s housing bubble has other similarities to the US one:
- In Q3 of 2011, Canadians owed $1.53 for every dollar they bought
- In 2010, average homeowner had just 34.3% of equity, lowest level in 20 years
- Average home now costs 5 times average income; 3 is considered affordable
- Home ownership is at 68%, right at US 69% peak
- At $348,000 average price, Canadian homes are now worth $3 trillion which is twice the GDP
- Some $220 billion has been taken out as home equity last year, number 3 times larger than in the US on per capita basis
Canada’s central bank chief Mark Carney has warned that some places in Canada will have their day of reckoning but he has stopped short of acknowledging a bubble.
“There are issues particularly in some parts of the country, in the condo market, without question, where activity has been particularly strong … and in some of our major cities, without question, evaluations are extremely firm. We’re warning of an issue at a time that we can still do something about it,” said Carney.
Despite some cooling in average home prices, individual markets are undergoing some violent price swings.
For example, average home prices in Vancouver declined over $92,000 in one month: from $823,749 in February to $730,998 in March, well over 11%. By contrast, in small Thunder Bay, home prices rose 13.5% in one month (more prices here).
… nor does a buyer get much of a home for any of these prices…