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OECD chief on Canadian housing: It’s not a bubble (just way overvalued

OECD chief on Canadian housing: It’s not a bubble (just way overvalued

These are stories Report on Business is following Wednesday, June 12, 2013.

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One of these things is not like the other
The OECD may rank Canada’s real estate market as one of the most overvalued in the world, but don’t equate that with bubbly.

Angel Gurria, the secretary-general of the Organization for Economic Co-operation and Development told The Wall Street Journal that Canada’s housing market, which has cooled of late, is not in bubble territory, and, separately, that the Canadian economy is in decent shape.

“An overvalued housing market and a bubble are not the same thing,” Mr. Gurria said.

“The housing market has been building very steadily over a period based on growth, jobs, good income, and a Canadian economy that’s been in good shape,” he told the news organization’s David George-Cosh on the sidelines of the economic conference in Montreal.

“Frankly, it’s not a bubble in the sense of great big speculation in the property. I think there will be a cull in some investment in the sector, which will see prices stabilize over time.”

Last week, an OECD study ranked Canada among the top three where overvalued properties are concerned, behind Belgium and Norway. It also warned of potential trouble in the event of a shock, though no one is projecting that.

Mr. Gurria's comments come as a fresh reading today showed Canadian home prices rose 2 per cent in May.

While prices in Vancouver and Victoria sank, others climbed over the course of the year, according to today’s Teranet-National Bank house price index.

Canada’s housing has cooled as sales have plunged, though prices have remained intact after Finance Minister Jim Flaherty’s attempts to tame the mortgage market and engineer a soft landing.

Today’s reading matches the 2-per-cent gains of April, meaning it’s still the slowest increase since late 2009.

But prices in seven of the 11 cities studied did better than the national average.

Quebec City chalked up gains of 6.5 per cent, Calgary and Hamilton, 5.8 per cent, Winnipeg, 4.6 per cent, and Edmonton 4 per cent.

In Toronto, which along with Vancouver has become the focus of the country’s real estate angst, prices rose 3.9 per cent.

Month-to-month, prices rose 1.1 per cent from April.

In Vancouver, prices rose 0.7 per cent on the month, though they slipped 0.8 per cent in Victoria.

“Although stronger than expected, May’s price increase from April is not exceptionally large,” said senior economist Marc Pinsonneault of National Bank.

“Indeed, it is below the average of 1.2 per cent in May in the last 12 years (including a recession year),” he said in a research note accompanying the release of the index.

“Without Calgary and Edmonton, the composite index would have risen just 0.9 per cent in May, the second-lowest increase for that month in the last 12 years. So, last May’s increase in the composite index is not a display of strength in the Canadian home resale market. However, it is consistent with an overall balanced market … as soft conditions in most of the eastern provinces and B.C. are offset by tight market conditions in the Prairies.”

Mr. Pinsonneault added he does not expect “a marked acceleration” in annual prices in the near future.

Mr. Gurria also praised former prime ministers Jean Chretien and Paul Martin for putting Canada on the path to fiscal health, where it stands today under the Harper government.

“All together, I’d say that Canada is reaping the rewards of past virtue and also present good practices,” he said. “It would be good if there were many more countries like that.”