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Could oil’s fall finally burst the real estate bubble?

A real estate agent puts up a "sold" sign in front of a house in Toronto.

Darren Calabrese/THE CANADIAN PRESS

It's getting close to that special time of year when Canadians gather with families and friends to indulge in a cherished national pastime – bragging about how much our homes have soared in value.

This year the boasting will depend on where you happen to live. When the Teranet House Price Index for November is unveiled on Friday, it's likely to show that the residential frenzy continues unabated in Vancouver, Calgary, Hamilton and Toronto. In contrast, Victoria, Ottawa and Halifax may display more signs of flattening or even outright decline.

The two-speed market is raising concerns that real estate is in for tougher times after years of generous giving. Teranet's index, which tracks the resale prices of homes, indicates real estate prices in Canada's major markets have shot up roughly two and a half times since 1999.

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Even with the recent cooling of some markets, real estate nationally continues to deliver presents that make Santa's offerings look paltry. Teranet's Composite 11 index, which tracks prices in nearly a dozen key cities, has been running about 5.4 per cent above last year – considerably better than a lump of coal.

But speaking of fossil fuels, investors should ponder what effect the recent plunge in oil prices will have on the outlook for Canadian home prices. The great national rise in real estate values began in the late 1990s, just about the same time as the price of oil began its long ascent.

Maybe that's a coincidence. On the other hand, it could be a sign of how much Canada's economy – real estate, included – has come to rely upon the wealth generated by oil sands crude.

Lululemon's big stretch

Canada, to be sure, isn't solely a petro economy. We've cleverly diversified into other key industries, such as yoga wear.

When Lululemon Athletica Inc. reports results on Thursday investors will be looking for evidence that the Vancouver-based purveyor of fashion for the deep-breathing set can continue its recent upswing.

Analysts Morry Brown and Taryn Kuida of Wedbush Securities are optimistic about the company's recovery from its infamous see-through pants debacle. They believe that improving revenue trends and international growth, among other things, can boost Lululemon's share price to $57 (U.S.) over the next two years, more than a 20 per cent gain from current levels.

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The Wedbush duo brush off the threat of increased competition from rivals such as Nike and Under Armour. They say that Lululemon's strong customer loyalty, combined with the rapid growth of the athletic wear sector, position it to do just fine.

Other observers aren't quite so, um, zen. Twenty-one analysts surveyed by Bloomberg label the stock a "hold" while only 11 call it a "buy" and four say it's a "sell."

Christian Buss of Credit Suisse, a member of the "hold" camp, noted last month that the retailer's foray into men's wear appears to be going well. Among his concerns, however, is the difficulty in generating sales growth at a time when the chain already has many mature stores operating at high levels of productivity.

As Lulemon's colourful shopping bags instruct us: "Friends are more important than money." But investors want the retailer to have more of both.

Do you fear what I fear?

At least in my house, no holiday celebration is complete without a close reading of the Bank of Canada's Financial System Review.

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The latest edition of the semi-annual appraisal, to be published Wednesday, is the ultimate stocking stuffer for worrywarts, a compendium of what has Bank of Canada Governor Stephen Poloz and his colleagues fretting as they peer ahead into 2015.

The bank's last review, in June, focused its attention on four key risks: a sharp correction in house prices, a sudden increase in long-term interest rates, stress from a decelerating China and possible blowback from the euro zone slowdown.

Now Mr. Poloz and his elves will be able to put an additional worry under the Christmas tree as falling oil prices loom over the national economy like the Grinch over Whoville.

The 38-per-cent fall in oil prices since June is still rippling through the oil patch and is likely to put capital spending plans on hold. On a brighter note, the stronger U.S. economy, as evidenced by an exceptionally strong jobs report last Friday, may finally be at the point where it can generate enough demand to help Canadian exporters.

The Financial System Review will help put the risks into context for those of us who worry about what Christmas Future may bring. Is there still an interest rate hike in store, Mr. Poloz? Just asking.

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