Skip to main content

Don't be seduced by the continued big numbers coming out of Canada's housing sector. The overheated market, a key concern to the Bank of Canada and other assorted economic worrywarts, is most definitely off its boil.

Some recent headlines may not strike the casual observer as cause for such optimism. Take Monday's latest numbers: The Canadian Real Estate Association (CREA) said that national home sales in November were up nearly 6 per cent from a year earlier, while the MLS Home Price Index was up 4.1 per cent. CREA was emboldened enough to raise its 2013 sales and price forecasts.

Doesn't really sound like the bubbles have stopped bubbling, does it? But take a closer look.

Despite the year-over-year increases (measured against what is generally acknowledged as a relatively weak year-earlier market), CREA's sales numbers slipped 0.1 per cent in November from October, their second straight monthly decline. "National sales activity in November stood 3.4 per cent below the peak reached in September," the industry group said.

It's telling that CREA should use the word "peak," because that's the context in which it interprets September's high and the subsequent slowdown. Sales surged unexpectedly in late summer as borrowing rates started to climb, a seeming worrisome disconnect; however, many experts theorized at the time that it was due to prospective buyers with preapproved mortgages who were rushing to buy before their lower, preapproved rates expired. CREA says the pullback in sales since September is "further evidence" that this was exactly what was going on – and now it has run its course.

The CREA report contains other evidence that the Canadian housing market, as a whole, is not as overheated as some believe. Sales and new listings for November were very close to equal – evidence of a market that is more or less in balance. Sales are in line with their 10-year average. And out of the 26 Canadian cities tracked in the report, 11 posted sales declines last month.

The details of some other recent statistical indicators support the notion that things are cooling. The November Teranet-National Bank House Price Index, released last week, was up 3.4 per cent from a year earlier, yet has been dead flat since August. Statistics Canada's new-housing price index for October, also released last week, was up a thin 1.5 per cent from a year earlier and has barely budged in three months. Canadian Mortgage and Housing Corp. reported last week that housing starts were at their second-lowest level in the past seven months in November; the six-month trend in starts is 10 per cent below where it was a year ago.

The data as a whole paint a picture of a housing market that, despite its disconcerting summer surge, is moderating. And the fact that some of the numbers remain historically strong only means that it is a healthy, gradual moderation – not further evidence of irrational overheating. This is looking less like a bubble swelling to an inevitable bursting, and more like a balloon slowly letting its excess air out.