« Resale home prices soar in 2004 | Main | Simple Ideas For Home Improvement »

Is there a bubble to burst?

With so much talk about the rising prices of homes, one inevitably begins to wonder if this isn't some sort of bubble that will soon burst. There are many reasons to believe that Vancouver's market and even British Columbia as a whole is well positioned for continued expansion in the coming years. Job creation and income growth are major factors that can support and legitimize a market's upward trend. Canada as a nation has seen incomes rise in concert with the rise in house prices. In contrast, Britain and Australia have seen recent spikes in home prices that have outpaced income growth. Historically we've seen bigger rises, but often they have taken place in selective regional pockets. The rising trend we're witnessing today is happening in almost every major market across the nation.

For the past several years, Canadian cities have seen record home sales and record growth in home construction, prompting concerns of a painful correction. Analysts say the furious pace will ease -- in some places more than others -- but prices will continue to climb this year.

"I don't expect to see price declines, is the upshot," said Bob Dugan, chief economist with Canada Mortgage and Housing Corp., the country's national housing agency.

CMHC figures show that both housing starts and resales are up dramatically since 2002. House prices rose 10.4 percent in 2002 and more than 9 percent in 2003 and 2004.

The agency sees prices rising 5.3 percent this year in the second most active sales year on record after 2004.

The strong market, a boon to the overall economy, has sparked comparisons to the bubble property markets of the late 1980s and early 1990s -- which burst as interest rates began to soar.

But analysts say today's low mortgage rates and a relatively balanced market, where supply is close to demand, mean that won't happen this time.

"A lot of analysts have argued that inflation-adjusted home prices have surpassed the peak in the late 1980s, early 1990s, and therefore we might be venturing into bubble territory," said Dugan. "We don't really think that's the case." - Reuters

Canada Home Prices Rise Seen Rising, But No Bubble [Reuters]

January 19, 2005 in Market Watch | Permalink