Economists who have been arguing that overeager home buyers in Toronto and Vancouver are inflating prices have found an unusual champion in one of the country's top real estate players.
Phil Soper, chief executive officer of Royal LePage, is warning of "irrationality" in the country's largest cities, an unusual admonishment from someone whose profession stands to gain from hot housing markets.
There is more enthusiasm for housing than seems reasonable given the underlying economy, Mr. Soper said in an interview yesterday. He also cautioned homeowners to brace for an extended period of stagnant house prices that could begin later this year.
For the time being, bidding wars continue to erupt in Toronto and Vancouver.
Nationwide, the price of a standard two-storey house was 10.3 per cent higher in the first quarter of this year than a year ago, at $365,141, according to a survey that Royal LePage released yesterday.
But national averages are of little use, Mr. Soper pointed out. Prices rose 19.2 per cent in Vancouver and 13.2 per cent in Toronto. By contrast, prices for two-storey houses in Edmonton rose 5.2 per cent, and those in Halifax rose 6.8 per cent.
Barry Lebow, a real estate broker who specializes in appraisals, has worked in Toronto for decades and said there's no question the market is irrational.
He has experienced it himself, having recently sold his house for more than $1-million: "We're in a very expensive area, and we had at least five people ready to buy. Three days on the market and that was it ... I've never seen a market like this and I've been in it for 42 years."
Housing prices continue to present a conundrum for federal policy makers. "The housing boom isn't really a national housing boom, it's very regional in its nature," Mr. Soper noted.
But heated pockets of a country can have a major impact nationwide. The U.S. housing bubble initially appeared in just a few states. As of last month, 61 per cent of all U.S. foreclosures were confined to six states, Mr. Soper said.
But neither Mr. Soper nor the majority of economists think there is a bubble in Canada. And they expect it won't be long before the market lets off steam, as rising prices and soon-to-rise interest rates curb affordability.
Banks have already begun raising mortgage rates, and Bank of Nova Scotia CEO Rick Waugh suggested in an interview that the shift will stick.
"It does reflect a more normal marketplace, and that will continue as these economic numbers continue to reinforce that things are growing," Mr. Waugh said.
Houses have been highly affordable for a number of years now but "that will change, and part of it will come quickly," Mr. Soper said.
A number of prominent voices, including former central bank governor David Dodge, have cautioned that Canadian house prices appear high and are likely to fall.
On average, national house prices have appreciated by about 2.4 per cent annually over the past 50 years, Mr. Soper said. But by the end of this year he expects a minor slump to begin during which price growth remains below normal. He is not, however, forecasting an actual decrease in prices.
"Everything comes down to the delicate balancing act that policy makers are trying to pull here," Mr. Soper said, noting that government and central bank policies have stoked the housing market.
"The introduction of economic stimulus affected our industry like no other," he said.
"The corollary to that is the withdrawal of stimulus could impact our industry more than other industries, unless the underlying economy begins to expand at a rate that can at least mitigate the impact of the withdrawal."
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National snapshot
Average Canadian house price increases in the first quarter, compared with a year earlier.
Toronto:
Bungalow: $459,107 (13.3%)
Two-storey: $562,150 (13.2%)
Condo: $317,579 (10%)
Vancouver:
Bungalow: $906,045 (21.8%)
Two-storey: $987,5000 (19.2%)
Condo: $470,000 (15.7%)
Montreal
Bungalow: $249,172 (7.2%)
Two-storey: $355,109 (7.6%)
Condo: $222,244 (7.6%)
