Oh boy, oh boy.  You can imagine how excited I was to see this very special issue of Toronto Life waiting for me when I got home last night.

Inside you’ll find a full monty run-down of the To Bubble or not To Bubble debate and how your neighborhood might be affected if the market goes down the tubes.

I was over the moon to be interviewed for the piece and happy to see my incredible real estate agent Kara Reed sharing some stories from the battlefield.

A must read for all creatures great and small!

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Yesterday, the front page of the Globe and Mail warned that Canada’s real estate market is approaching bubble territory.  One thing I noticed in the photo accompanying the article is the French “For Sale” signs, indicating that Montreal is also experiencing a red hot market.

While the article is certainly convincing, I find generalizations of the Canadian real estate market difficult to swallow.  Real estate is always influenced by national factors like cheap credit, loose government policy around lending, and the economy in general.  But regional differences in real estate markets make it impossible to trumpet predictions that will affect every city and hamlet alike.

My parents tried unsuccessfully to sell their five year old home in Oshawa in Spring 2008, while bidding wars were commonplace downtown.  Every time I drive through their area I see more “For Sale” than “Sold” signs.  Montreal had been experiencing a much worse market downturn than Toronto and has started to recover on a completely different schedule.  The bidding war trend we’re seeing in Toronto, even for condos, isn’t playing out the same way in Vancouver.  A friend of mine just sold an authentic loft in a very happening neighborhood in Vancouver for below asking, and this property likely would have seen multiples in the 416 area code.

I may sound like I work for CBC radio here, but I would love to see more regional representation in these articles.  Of course the national picture is important, but how does that translate to urban cities, suburban towns and rural areas of the country?  With the US bubble, it seemed like it impacted everyone from rural Maryland (thank you Real Estate Intevention) to LA (thank you Million Dollar Listing).  Are there multiple offers happening in Fredericton right now? Even a few examples to give us a flavour of how the  theoretical Bubble is impacting other parts of the country would help paint a more convincing picture.

What are housing prices like on Baffin Island these days?

For more on Toronto’s housing bubble please see:

Housing bubbles 2.0 and more

To bubble or not to bubble?

For the BEST rendition I’ve heard of Oh Canada in a looong time, check out:

Classified at the 2010 Juno Awards

You know how Hollywood producers have a huge debate about what to call their sequels – do we go with Spiderman “2”, Teen Wolf “Too”, or get all classy and use Ghostbusters “II”?  I kind of had that this morning.  Titles aside, I’m here with an update on Toronto’s potential housing bubble and also an important heads-up on interest rates.

The Bank of Canada has announced that interest rates may rise sooner than expected due to the quick rebound of inflation and economic growth.  If you’re currently looking for a house, check in with your mortgage broker and see if you can lock in another rate with a later expiry that you can use if you don’t find a house as quickly as you’d like (this rate might be slightly higher than the one you’ve already locked in but certainly lower than you’d get if rates go up).  Check out “Higher interest rates on way“, Toronto Star.

First up – a piece in the New York Times, “Some see a real estate bubble forming in Canada”.  I know it’s wrong but the Canadian in me can’t help getting excited when our market gets noticed in the US.  It’s an interesting article but the emphasis is more on Montreal and the writer focuses on the statistic that our market has risen 19% in a year, not mentioning that housing prices in December 2009 were up just 2% over the previous high in August 2008.

Whassup? Gimme three semi's in Roncy.

Another article from the US – “Why Canada avoided a mortgage meltdown” in the Wall Street Journal.  I can just imagine Gordon Gekko reading skimming this after skipping “Lunch?  Lunch is for wimps”.  Speaking of Gekko and real-life suits like him, I just saw “Capitalism, A Love Story” which I highly recommend.  This article barely skims the surface of the heartbreak of the mortgage crisis but it provides some insight into why we’re not foreclosing left and right.

Happy reading, houseflies.

Hubble bubble toil and trouble.  You can’t swing a cat these days without overhearing yet another conversation about a housing bubble forming in Toronto.  For anyone that has recently bought a house, the bubble threat is scary.  People always like to commend you on a “smart” decision if the price of your house rises significantly so I guess that means you’re the village idiot if the prices drop.  The unfortunate souls who buy during the height of the market become the signature cheesy scene in every popcorn comedy, the dumb guy berated by his friends for making out with that hot chick who is, duh, totally a MAN in drag.  How couldn’t you tell, sucka?

So what to do?  Buy now or wait until the theoretical bubble bursts?  I heard all the bubble hype when I bought my first house in 2006 and in three years the value increased by 32%.  Had I waited, I certainly wouldn’t have been able to afford the same house even if I had bought in the pit of the market in Winter/Spring 08-09.  So are we approaching a bubble?  Will all the haters who bought in the suburbs or chose to rent finally get their moment of victory?

Are gloomier days ahead? Photo of Jones Avenue by Rémi Carreiro

If I could actually say with certainty that we were or were not in a housing bubble, I would be doing much more important things than writing this blog…like plotting world domination or making billions on the stock market.  Before we decide on our current bubble or non-bubble status, it is important to actually define what a housing bubble is.

Contrary to popular belief, a bubble is not just a rapid appreciation in prices.  In our current market, prices are rising because of strong demand for housing due to low mortgage rates and limited inventory.  This is not by definition a bubble, even if average home selling prices rise quickly like, uh, say 19% from $343,632 in January 2009 to $409,058 in January 2010.  A housing bubble is a market where prices rise purely on speculation of future increases, where buyers pay significantly over asking in anticipation of a perceived future value that may or may not bear out.  Housing prices increase rapidly until they reach unsustainable levels relative to incomes and the pace of the economy and then SPLAT, you’re waking up next to a dude.

The largest freestanding bubble care of England's SamSam the Bubbleman. Incredible! Photo by The Sun

Is that what we’re experiencing right now?  Unfortunately we never seem to really know if we’re in a bubble until after it pops.  Why did people get so high on real estate fumes and Alberto VO5 hairspray in the 80’s?  Over a five year period from 1984 to 1989, houses appreciated by 167% and interest rates hovered at 11-14%.  On average in Canadian real estate hot spots, it cost almost 75% of pre-tax income to service mortgage payments, property taxes and utilities on a standard two-storey home, whereas that number is now hovering around 58.4% for Torontonians.  It seems totally obvious to us now that the hot mess of 1984-1989 was going to end in tears.  But, like a bad relationship, when you’re in it, the whole situation is never quite that simple.  That old bastard hindsight is always to blame.

I’m going to go out on a limb here and say that I don’t think we’re experiencing a bubble just yet.  While prices have made a massive increase from a year ago, it can be argued that we’re making up ground lost during the financial crisis.  In December 2009, prices were up just 2% over the previous high in August 2008.   Certainly the current acceleration of the market feels unsustainable but things should slow down as affordability erodes and the interest rates rise.  What happens over the next few months will really define whether or not we’re going to bubbleland.  Now that we’re basically caught up to pre-recession housing prices, how fast will growth be over the spring market and will speculative buying become a problem?  Only time will tell…

For more information on Toronto’s potential housing bubble check out:

Frantic housing market ready for calm, Globe and Mail

Housing market in bubble territory?, Toronto Star

Toronto housing market expected to cool next year, Toronto Star

Bank of Canada says sees no housing bubble yet, Reuters