Sunday, April 09, 2006

Canada's Housing Market is Heating Up

The U.S. housing market may be rolling over, virtually all Canadian cities remain undervalued (with the exception of BC). The Canadian housing market did heat up in the first quarter of 2006 and remain robust. The real estate conditions are relatively tight in aggregate. As a result, the national average price of existing homes continues to climb at a vigorous pace. These national figures significantly mask a great divide emerging from a regional perspective. It can also create the perfect breeding ground for speculative housing price bubbles to form. That's because in such an environment, housing market participants are at greater risk of developing a case of `irrational exuberance,' especially if they expect that such exorbitant price gains will continue indefinitely. The "soft landing" in Ottawa housing market has already begun to occur. Currently the price is trending higher because the price has remained above its long-term (2-year) moving average since Jun. 1997. The great 1997-2006 price advance is over and a reasonable scenario is for prices to drift into the mean or long-term moving average, giving us that healthy soft landing.


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