CIBC Deputy Chief Economist Benjamin Tal said it’s “tempting to conclude the housing market is already in clear bubble territory and a huge crash is investable.”
“When it comes to the Canadian real estate market at this stage of the cycle, any statement based on average numbers can be hugely misleading,” he said. “The truth is buried in the details—and there the picture is still not pretty, but much less alarming.”
Average prices can be influenced, for example, by large number of sales in the higher or lower end in the market. That’s one reason the Greater Vancouver Real Estate Board does not offer an average price in its stats – instead it offers a “benchmark” housing price, which is more of an indication of a typical house.
Tal said the average home price in Vancouver rose 25.7% on a year-over-year basis to more than $800,000 in May. But when the properties sold over $1 million are removed from the equation, the average sale price slipped to $590,000 and the price appreciation was more moderate.
The national average of a house price in Canada was up 8.6%, but when Vancouver is removed from the equation, it’s just a 5.6% gain, said Tal.
Former MP Garth Turner has also recently told CRE Online
he feels average prices are a “meaningless” measure for the market and should be eliminated.
Others disagree, including CREA Senior Economist Gregory Klump, who said averages are useful when comparing trends in various markets.
And some CRE Online
readers have also reacted to Turner's view, including one reader whose post on the CRE Online
Facebook page suggested Turner has a limited understanding of the topic. “Mr. Turner could possibly serve the public interests better by seeking to better understand something before denouncing it so publicly,” said the comment.
Many national real estate agencies across the world prefer to use the use of median prices opposed to average, since the median tends to cancel out the outlying property sales.
Whatever the measure, the details reveal some sort of moderation of prices is inevitable in the near future, said Tal, but it won't be like a bursting bubble.
"In Canada, a sharp and brisk tightening cycle is unlikely. The market expects a gradual increase in short-term rates in the coming years. The rising number of mortgage holders that carry a variable rate mortgage will be the first to feel the pain. But if history is any guide, they will return quickly to the comfort of a five-year fixed rate the minute the Bank of Canada starts hiking."
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