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Market Watch

Pocket Ben Explained – The Data Behind the Housing Bubble Did You Know Video

Wednesday October 1, 2014

By Ben Myers
Senior Vice President, Market Research and Analysis

Last Wednesday we introduced a series of “Did You Know?” videos on the Canadian housing market, one featuring each of our executives. Thanks to our CEO Jawad Rathore’s commentary regarding the videos, you might hear them referred to as ‘pocket Ben’ or ‘pocket Frank’, meaning whenever you get one of these frequently asked questions, you have each of the execs on your phone to answer the question for you.

My topic is one I’ve been asked about thousands of times, is there a bubble in the Canadian housing market. Here is my animated response:

As a guy obsessed with analytics, I’m happy to report that my video is getting viewed twice as much as the other ones! With that viewership, the ‘usual’ crowd has now watched it, and less than a week after we posted the video, I’m getting criticized for the pricing data I used (UGH). I honestly feel like a boxer fighting the housing bears, I’ve won the last 17 rounds (the Toronto housing market has been relatively strong for the last 17 years), yet they just won’t give up.

The reason I chose the Statistics Canada New Home Price Index (NHPI) for the video is that Fortress is in the new home business (not resale), the NHPI is the longest data set I could find (over 30 years), it attempts to track only a constant home size, lot size, interior finish, and it comes from one of the most reputable sources. That being said, it still might underestimate the level of price growth in the market as it is not a representation of actual transactions (see definition), so perhaps the bears bring up a valid point.

I’m all about full disclosure, so let’s look at the data. The NHPI for Canada increased by approximately 3.3% annually over the past 30 years, 3.6% over the past 10, and 1.4% over the past five. When looking at the ‘house only’ component of the NHPI (excludes land), those figures change to 3.3%, 3.7% and 1.8%.

How about the median price of a newly absorbed single-detached home in Canada as tracked by the Canadian Mortgage and Housing Corporation (CMHC) – from 1990 to 2013, prices increased by 4.5% per year. Over the past 10 years, that rate was 7.0%, and 3.4% over the last five – pricing appreciated at a year-over-year rate over 10% just twice in that time (2004 & 2007). Semi-detached houses you ask: 5.5%, 5.4% and 1.6% over the same time periods (double digit price inflation in 1998, 1999, 2004, 2007, 2008 – you see more price volatility with smaller sample sizes).

Someone might come back with, “Ben don’t you say that there is no such thing as a national housing market, that they can mask regional discrepancies, you should look at metro data only?” I just might say that, so let’s look at the same time periods as above for new single-detached homes in the Toronto Census Metropolitan Area (CMA). The result: 2.9%, 7.3% and 5.4% annual appreciation. So despite a major shortage of land for singles in the Toronto CMA (and increasing unit sizes), we still have not experienced any hyper price inflation, with price growth in excess of 10% only once over the past 20 years (2005).


How about the resale market? The Teranet-National Bank Composite House Price Index shows national price growth of 6.1% annually over the past 10 years (Composite 11 Cities), and 4.8% over the past five. The only double-digit year was 2006.

The Canadian Real Estate Association has their own MLS Home Price Index on resale housing that they have tracked since 2005. This resale index for Canada overall has increased by 5.2% per year from 2005 to 2013, and 4.3% over the past five. This index reports price growth in excess of 10% in both 2006 and 2007. You can also break down the CREA figures by product type, single-detached houses have grown by 5.6% since 2005 and 5.0% over the past five, townhouses up by 4.7% and 2.9%, and condominium apartments by 4.5% and 3.1%.

But what about the dreaded Toronto condominium market, surely that is in a bubble? According to per-square-foot pricing data from Urbanation Inc since 1990, it doesn’t appear so. New condominium apartment pricing is up 3.4% annually from 1990 to 2013 in the Toronto CMA, 6.1% over the past 10, and 5.5% over the past five. Resale condominiums have appreciated at a rate of approximately 4.0%, 6.1% and 5.9% over those same time periods. The last time index pricing was above 10% at year-end was 2007 in the new market, and 2009 in the resale market.

There is no bubble in the Canadian housing market. Most of the measures of price growth show 3% to 6% annual appreciation when looked at over longer terms, this is hardly ‘rapid’ increases. Although some measures have indicated price growth in excess of 6% annually for a short period of time, very rarely have prices gone into double-digit territory nationally, and they really haven’t come close over the past five years.

We’re into round 18 of this fight with the housing pessimists, and guess what, I’m still winning because I have logic, and more importantly data in my corner. Please share ‘pocket Ben’ with any of your naysaying neighbours and friends, and I’ll keep battling the bears.

Note: No bears were harmed in the writing of this post. Mr Myers would never actually fight a bear. Fortress and all its affiliates respect these noble and beautiful creatures and encourage everyone to support the protection of their habitats by making a donation to the World Wildlife Fund

TAGS:Animated, Ben Myers, Housing Bubble, Toronto Real Estate