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Report On Business Flaherty may be keen to intervene, but not everyone sees a housing bubble

The doomsayers of the Canadian housing market got a fresh round of ammunition this week.

First, the Organization of Economic Co-operation and Development warned of the risk of a "disorderly correction" in the Canadian real estate market. Then the credit-rating firm Fitch Ratings said the country's residential prices are overvalued by 21 per cent. Homes in British Columbia, Ontario and Quebec, where prices are apparently inflated by a whopping 27 per cent, are viewed as the most vulnerable to a correction.

The news made for striking graphics: Growing condo towers evoked overstretched homeowners and tottering housing markets. It's actually surprising "for sale" signs didn't spring up all over, turning the latest headlines into a self-fulfilling prophecy. (Mind you, this might still happen.)

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And so it is that bubble talk is fizzing once more in Vancouver, Calgary and Toronto. But as bubbles are only recognized as such after they burst, you can never be certain they exist until it's too late.

If there are experts in bubble spotting, then surely Robert Shiller, the U.S. economist who foresaw the tech bubble of 2000 and the American housing collapse, is one of them. But even the author of Irrational Exuberance doesn't venture that far where Canada's housing is concerned.

"Toronto prices keep going up. They have increased almost as much as New York prices ever did," the Nobel-prize winner told a crowd of chartered financial analysts in Montreal two weeks ago. He went on to compare prices in Canada and the United States with graphs that support his view of troubling signs of ebullience in Canada. Yet, when asked point blank, the Yale professor stopped short of calling it a bubble – unlike the prediction he made in September in Brazil about that country's housing market, which did not sit well with Brazilians.

The fact is the assorted data on Canada's real estate market have been pointing in a number of directions and have been remarkably difficult to interpret.

The latest statistics from the Canadian Real Estate Association indicate home sales shot up 8.3 per cent in October from a year ago. But then, home sales were hammered after Finance Minister Jim Flaherty tightened the mortgage lending rules in the summer of 2012 for the fourth time since 2008.

Home sales in Canada were actually down 3.2 per cent from September, after a sizzling summer. Many home buyers with previously approved mortgages sped up their search, falsely believing mortgage rates would shoot up again.

Moreover, there are differences across the country. The average sale price of a house in Toronto's 416 area code has increased 10 per cent in the past year, according to the Toronto Real Estate Board. But look at cities in neighbouring Quebec, and prices are flat-lining. Average prices actually decreased 0.2 per cent in the province from January to October compared with the same period a year prior.

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Even within city markets, there are wide gaps and differing realities. In many of Canada's markets, such as Toronto and Montreal, detached homes are in short supply, while there is an overabundance of condos that real estate promoters are trying to unload.

Notwithstanding, Mr. Flaherty is having a hard time resisting the lure of the real estate market. "I've intervened four times in the last several years and I'll intervene again if I have to," he said in Edmonton as he unveiled his fiscal and economic update over a week ago.

One could see why it would be tempting to play God once more. There is no end in sight to the cheap money and Mr. Flaherty has cried wolf so often his warnings have lost some of their effect.

But even if housing prices move sideways or fall a little in the next few years, there doesn't appear to be an imminent threat to the housing market. Prices may be horribly steep for first-time buyers. However, there is no sense of rampant speculation – which is the only thing we can rely on in the absence of hard data about people who are looking for property as an investment rather than as a place to live.

Even if Fitch Ratings believes the Canadian market is markedly overvalued, it only expects a "soft landing" with stalling or slightly receding prices. Worst-case scenario? A 10-per-cent decline in certain markets. All told, the sky is not falling.

Does this warrant a fifth round of tightening measures to mortgage rules? No. It was a good idea for the overprotective Mr. Flaherty to ask Canadians to cough up a little more money before they buy a welcome mat for their new home. But this would be overkill.

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