No bubble burst on the horizon

Reports of Canadian housing markets heading towards a bubble often strike fear in homebuyers. However, a recent release indicates that Canadians should keep calm and carry on.

Prices were on the incline in several major markets across the country, and the nationwide average is a record high. Data from Teranet-National Bank show that home prices have increased by 2.3 per cent since August 2012, and by 0.6 per cent month-over-month.

This is welcome news for homebuyers and investors, given the fear that Canada’s housing markets are heading toward a bubble situation. Several factors have influenced this growth, and their performance going forward will indicate whether or not this upward trend will continue.

“The combination of having an economy that hasn’t quite stalled, a pickup in the United States (markets), and foreign investment coming into Canada is doing a lot to buoy prices,” says Brandon Sage, New Business Development Manager for Toronto-based LandLord Property Management.

Several of the country’s largest markets saw significant year-over-year home price increases. Calgary led the pack at 6.5 per cent, Hamilton placed second on 5.5 per cent, and Toronto was third on 3.8 per cent. Although it has been known to be a volatile market, Toronto is quickly regaining its status as an investment hot spot.

“You can buy a smaller multi-family property that can be flipped back into a normal house at any time,” he explains. “In the meantime, it operates as a successful business that has a capitalization rate that often exceeds 6 per cent, and value appreciation in the 10 to 20 per cent range.”

While several markets saw noticeable jumps, slight decreases were observed in other areas. Vancouver’s prices fell 0.1 per cent, a trend that has continued for 13 months. Victoria saw a drop of 2.5 per cent, while Halifax’s prices experienced a 0.6 per cent decrease.

Buyers should not be deterred by this information, however, as these markets may very well make a comeback in 2014. The fear of a bubble was effectively quashed by one expert, who cited that the inflation rate was far less in Canada than in the United States.

“Even if it exceeds CPI inflation, home price inflation in Canada remains subdued in August, especially if it is compared to the 12 per cent rate registered by the U.S. Case-Shiller index,” National Bank economist Marc Pinsonneault told the National Post.

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