07/17/2013 10:11 EDT

Toronto House Prices Soar; Was There Even A 'Soft Landing'?


Even the optimists were calling for a correction to house prices in Canada, and even the optimists turned out to be too pessimistic. At least for now.

The latest data from the Toronto Real Estate Board finds residential real estate prices in Canada’s largest city spiked 8.1 per cent, year over year, in the first half of July. The average price of a house in the Greater Toronto Area broke through the half-million-dollar mark, and now sits at $510,819.

On the national level, the Canadian Real Estate Association reports prices up 4.8 per cent in the year to June, with sales volumes down a small 0.6 per cent.

Those price hikes are well above income growth, and suggest debt burdens are starting to rise again, after taking a breather in the first half of this year.

Even Toronto's condo market, which almost everyone agreed was in for some sort of correction, either huge or small, is bouncing back, with prices rising a modest 2.2 per cent. Sales volumes are stabilizing, after falling precipitously in 2012.

Of course, it’s not like this everywhere across Canada. Vancouver’s famously overpriced housing market continues its own correction, with prices down three per cent, and condo markets around the country are under pressure. Quebec City has seen a six per cent decline in median condo prices.

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Still, pundits were predicting much worse for Vancouver, and for the country as a whole. Which begs some questions: Did we actually experience the “soft landing” that many economists had predicted? It’s hard to see how this is a “soft landing” when prices nationwide have just kept going up.

For the pessimists predicting a housing bubble, this is just more evidence of a real estate market that’s out of whack. Sales volumes have declined over the past year, household debt is near record levels, the job market has been moving sideways, yet house prices are outstripping inflation. From this perspective, the rising prices are just setting up the country’s housing market for an even bigger bust-out when it eventually comes.

If you’re an optimist, like BMO economist Robert Kavcic, you’re likely to explain the return of the housing boom by pinning it on mortgage rate panic.

"Interestingly, the recent move up in five-year fixed rates ... might have actually stoked sales activity in June, with buyers making their move before their lower rate contracts expired," Kavcic said in a recent note. "If so, that could set the stage for another cooling off period this summer."

A “cooling off” this summer? We’ve heard that before. We’ve heard Paul Krugman say we’re in for a serious correction, we’ve heard the OECD and The Economist declare we’re in a housing bubble, we’ve heard Robert Shiller of the Case-Shiller Index declare Canada to be in a “slow motion” version of the U.S.’s housing bubble collapse.

But so far, no dice. No dice, either, on the "optimistic" projections. Scotiabank last year predicted a 10-per-cent decline in house prices (considered moderate compared to, say Capital Economics’ prediction of a 25-per-cent collapse), and other banks also warned of falling prices.

None of those predictions have come true. So perhaps a new rule of thumb is in order: When it comes to Canada’s housing market, whatever the experts predict, whatever seems reasonable or rational -- that’s exactly what won’t happen.