Real estate market bounces to highs

Ted Zaharko spent the end of 2008 cutting staff and costs at Royal LePage Foothills.

It was the height of the recession, and the resale housing market contracted by 25 per cent in the fourth quarter as buyers vanished "because things looked so hopelessly grim."

Mr. Zaharko doesn't like to talk about those days in Calgary, especially since the buyers are back and willing to spend. His 250 employees are as busy as he's ever seen them.

"It was bad and it felt hopeless, because nobody was buying anything and the world felt like it was about to end," he said. "Then in mid-March things started to turn. By the end of last year, we couldn't keep up."

Mr. Zaharko's story illustrates the remarkable recovery in Canadian real estate, so much so that the talk has turned to whether the industry could be headed into bubble territory as buyers take on debt at record low interest rates. Some fear it could pop while others project a soft landing, with an inevitable slowing as more sellers put their homes on the market and interest rates head higher.

Across the country, the Canadian Real Estate Association (CREA) said yesterday, December sales increased 72 per cent from the same month in 2008, to 46,805 units, while prices gained 19 per cent to an average $337,410.

The record month capped the strongest quarter ever recorded – sales increased 59 per cent over the previous year.

The national average price climbed 5 per cent in 2009, to a record $320,333.

"It is simply amazing to think that we saw any increase in prices at all in the teeth of one of the worst recessions Canada," said Douglas Porter, deputy chief economist with BMO Nesbitt Burns. "That is not something anyone was predicting. While I think it's a little premature, the formation of a bubble is something we should be discussing."

The Bank of Canada, whose overnight lending rate helps determine mortgage rates, took the unusual measure of delivering a speech on the topic earlier this month, declaring it "premature" to talk about the formation of an asset bubble and dispelling any notion of its intervention to cool the market down.

CREA also brushed aside any suggestions of an overheated market yesterday as it released the data.

"Cooler heads recognize that many of the recent gains reflect temporary factors that could fade by summer," said chief economist Gregory Klump.

New listings posted a year-over-year gain in December for the first time in a year, with 33,090 properties made available. Along with interest rates that are expected to be higher by the second half of the year, he said the market should find its balance.

"A more balanced market will result in smaller price increases in the second half of the year," he said. "By the second half of 2010, price gains are likely to shrink significantly, since a year will have elapsed since the decline and rebound."

(prepared by Steve Ladurantaye/Globe and Mail)