Source: Zero Hedge
Shortly after we remarked most recently on the unprecedented Canadian housing bubble that has migrated from Vancouver to Toronto, Gluskin Sheff’s Chief Economist David Rosenberg joined the growing chorus of calls for government intervention into the Toronto housing market. In an interview on BNN, Rosenberg, who correctly called the U.S. housing bubble in 2005 when still at Merrill Lynch, said the massive deviation from historical norms has him drawing comparisons between the two situations.
“This bubble is on par with what we had in the States back in ’05, ’06, ’07,” he said. “We have to actually take a look at the situation. The housing market here is in a classic price bubble. If you don’t acknowledge that, you have your head in the sand.”
Rosenberg warned unchecked increases in home prices are becoming a social issue. “It’s not an equity, it’s not a bond — it’s where people live,” he said. “Where home prices are in Toronto, they absorb 13 years of average family income. That is completely abnormal. We’ve never seen this before.”
“We’re out of equilibrium, and when we’re out of equilibrium, or there’s some sort of market failure, are there grounds there for government intervention? I think even the most ardent libertarian would say ‘yes’.” Rosenberg said there are a trio of levers the government can pull to cool down the market. Authorities can address supply, which he said has already been “kiboshed.” Interest rates can be raised, but Rosenberg doesn’t believe the Bank of Canada will do that. Or new policy can be drafted to address the prevalence of speculation.
“These are not prices driven by the local fundamentals — this is the foreign buyer coming in,” Rosenberg said. “Toronto has really emerged as a first-class city, not just politically, not just culturally and economically, but also in terms of being a major financial centre. But if you’re going to ask me at this stage, ‘do we need to approach taxation of this capital coming in differently to curb the demand?’ [That’s] absolutely right.”
And just to make his position clear, Rosenberg also an op-ed in Canada’s Financial Post on the topic, titled simply enough:
“Make no mistake, the Toronto real estate market is in a bubble of historic proportions”
by David Rosenberg
The concerns about froth in Toronto’s housing market are not likely to subside given the sticker-shock from the latest report from the Toronto Real Estate Board.
As per the March report, the average single-detached house in the Greater Toronto Area (GTA) sold for $1,214,422 last month up from $910,375 in March of last year — that is a 33 per cent YoY surge, and follows a 16 per cent run-up over the prior 12 months.
Whatever the term is for an acceleration in an already parabolic curve, well, that is what we have on our hands today.
And it isn’t just detached homes seeing this degree of rapid price appreciation — the benchmark single-family home selling price was up 29 per cent YoY, the benchmark townhouse price was up 28 per cent and the condo/apartment composite was up 24 per cent.
This is a bubble of historic proportions.
Not only to have home prices in the GTA now absorb an unprecedented 13 years of median family income, but to have 30 per-cent-ish run-ups against a backdrop of a 2 per cent inflation rate, wages that are barely going up 2 per cent as well, and nominal GDP growth of around 4 per cent. This should put 30 per cent into some sort of perspective when we conclude that what we have on our hands is a near three standard deviation event.
That alone qualifies as a bubble — if you don’t like that term, then call it a giant sud. In the past, Toronto home prices went up at an annual rate of 4 per cent in real terms, in the past year they have surged by nearly 30 per cent.
Some context, however, is needed here.