There’s a housing bubble in Toronto and we need to “drop the pretence” and face it, BMO’s chief economist said Wednesday.

Douglas Porter said that prices rising 22.6 per cent in a year was the fastest pace since the 1980s and is also 21 per cent above inflation. He said prices were “dangerously detached” from economic fundamentals.

Porter said that it isn’t just Toronto itself, but some of the cities around it that are in a bubble and he called into question the widely-held view that tight supply will maintain prices.

“Housing starts in Toronto and Vancouver have been chugging along at almost 70,000 units per year recently, an all-time high, while overall Canadian starts are above demographic demand at 200,000 units in the past year,” the report says.

However, a the Canadian Real Estate Association’s latest report suggests that any bubble isn’t set to burst in the short-term.

“The shortage of homes available for sale has become more severe in some cities, particularly in and around Toronto and in parts of BC,” said Gregory Klump, CREA’s Chief Economist. “Unless sales activity drops dramatically, the outlook for home prices remains strong in places that face a continuing supply shortage.”

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