It’s either a sign that the housing market is healthy and resilient, or a sign of irrational exuberance along the way to a housing bubble.
Either way, Greater Toronto home sales and prices soared in November, according to the city’s real estate board, with prices jumping a breathtaking 11.3 per cent from the same month a year earlier.
The average price of a detached house sold in the city of Toronto reached $855,188, with condos averaging $385,968. For the GTA as a whole, prices averaged $681,597 for a detached home and $354,864 for an average condo.
The total number of home sales also soared, by nearly 14 per cent compared to November of 2012.
“Annual home price growth remained well-above the rate of inflation in November,” Toronto Real Estate Board senior analyst Jason Mercer said.
But Mercer said the spike in prices and sales “makes sense given the fact that competition between buyers increased last month.”
New listings of homes for sale fell 4.4. per cent, the board noted, and month-end active listings were down more than 12 per cent. So even as prices soar, fewer people are putting their properties up for sale.
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Some market observers have questioned the accuracy of housing data coming from the country’s numerous real estate boards, suggesting numbers may be getting inflated due to errors in the way home sales are counted.
Others are pressing Finance Minister Jim Flaherty to do something about the country's lack of data on foreign investors in housing. Unlike many other countries, Canada doesn't collect data on foreign buyers of housing. That's a key part of the puzzle to understanding the housing market, critics say.
But even errors or gaps in measurement couldn’t account for the strong growth seen in the housing market in recent months.
Some market analysts will likely point to the strong numbers as another sign of a housing bubble in Canada. But though he acknowledges the risks to the economy from an overheated housing market, Bank of Canada Governor Stephen Poloz says there is no bubble, as the market still reflects economic fundamentals.
“Our judgment is (the housing market) is a situation that is improving, this is not a bubble that exists here that would have to be corrected,” he said.
That’s also the view of a recent Royal LePage report, which argued there is overbuilding in the condo markets in Canada’s three largest cities, but not enough of it to conclude there is a condo bubble.
But Nouriel Roubini, the financial analyst who rose to fame by correctly predicting the U.S.’s housing bubble and subsequent financial crisis, recently named Canada as one of nearly a dozen countries where a global housing bubble is forming.
Roubini says persistent low interest rates across many countries have inflated prices into bubble territory. A collapse of so many real estate bubbles could harm the global economy, Roubini argued.
But Roubini says the bubbles may not be ready to burst just yet, "because the forces feeding them – especially easy money and the need to hedge against inflation – are still fully operative."
Along with Canada, Roubini named Australia, Finland, France, Germany, New Zealand, Norway, Switzerland, Sweden and the London metropolitan area as being in bubble territory, along with some emerging markets, including China. The U.S., where prices and sales are growing but are still low compared with historical norms, was not on Roubini’s list.
The Bank of Canada on Wednesday decided to keep its key interest rate at one per cent, a level it has been at for nearly four years. The bank said there isn’t enough inflation in the economy to justify raising rates.