The Globe and Mail

A recovery in the Canadian housing market, which was "as V-shaped as you can be," has been based on fundamentals, although Toronto-Dominion Bank warns that things could get carried away if the recent enthusiasm continues. Sales and average prices as of the end of October have recovered from the recession, with each 5 per cent higher than their previous peak, which was set in late 2007. Prices had pulled back 12 per cent through the recession. "Viewing this sharp two-year cycle as a blip is misleading," the bank's economists wrote in a report yesterday. "The price adjustment in the downturn was partly warranted by fundamentals, which leaves the current market value in a state of mild over-valuation similar to that of late 2007." The economists concluded current prices were not too high, but they did warn that "current market momentum has the potential to lead to significant price overshoot." The next year should see the market transition to a more balanced situation, with higher prices drawing more supply. And as houses become more expensive, fewer will be willing to engage in pricey bidding wars. "By 2011, housing and the overall economy will experience role reversal," they concluded.