The “B” word has started floating back into discussions about Canada’s housing market. The latest numbers from the Canadian Real Estate Association help to explain why worries about a bubble are on the rise.
Sales activity in February jumped nearly 40% compared to a year earlier, setting a new record. Sales rose nearly 7% compared to January. The national average price surged by 25% year-over-year. New listings rebounded month-over-month in February but inventories remain at record lows. Nationally there is just 1.8 months of supply.
The Bank of Canada has expressed concerns about overheating. Governor Tiff Macklem has noted that there are signs that real estate speculation is on the rise.
"What we get worried about is when we start to see extrapolative expectations, when we start to see people expecting the kind of unsustainable price rises we've seen recently go on indefinitely, and they're basing their decision on those kinds of assumptions," Macklem warned earlier this month.
Other market watchers point to less “bubbly” factors.
“I think part of it is demand that built up as a result of regulatory changes in the years leading up to COVID that is playing out now. Part of it is demand that is being pulled forward from the future either in search of a home base to ride out the pandemic, or to lock down a purchase amid rapidly rising prices while securing a record low mortgage rate,” said Shaun Cathcart, CREA’s Senior Economist.
Tsuriel Somerville, a professor of urban economics at the University of British Columbia, believes demographic factors could be pushing the market. He also believes COVID-19 may have accelerated some transactions that would have happened anyway, but over a more extended period. Somerville says millennials – who are said to be happy with renting and living in a sharing economy – will eventually get into the ownership market when their demographics dictate.