Putting Words in Ben Tal’s Mouth

July 12th, 2011 by Potato

“So is it a bubble? Glancing at popular metrics such as the price-to-income ratio or the price-to-rent ratio, it is tempting to conclude that the housing market is already in clear bubble territory and a huge crash is inevitable. Tempting, but probably wrong. 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. The truth is buried in the details—and there the picture is still not pretty, but much less alarming.

The average house price is still rising by 8.6% on a year-over-year basis. However, take Vancouver out of the picture and this rate slows to 5.6%. Exclude both Vancouver and Toronto and the price increase is only 3.7%.”

So if the country as a whole is close enough to be a bubble that it’s tempting to conclude such, but is really only being driven by Toronto and Vancouver, left unsaid is the conclusion that Vancouver and Toronto are in bubbles — bubbles large enough to skew the averages for the entire country.

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