Did All Canadian Cities Enter The Bubble Phase At The Same Time? Was Every City In Canada Undervalued?

Here is how the average house price in Canada looks over the years.  These graphs courtesy of The Economic Analyst

As we can see here, the average price in Canada was pretty much level in the 90's and did not start to grow until about 1999 and then it started to take off in about 2002. 

Let's take a quick look at some house prices measured against disposable incomes from cities across the country from the late 80's.

Here is Vancouver.

People have always paid a premium to live in Vancouver but the premium now compared to history is totally out of whack .  The beginning of 2003 is when house prices really started to move out of alignment of incomes.

Here is Calgary

Calgary started their ascent into bubble status at the end of 2005, beginning of 2006. This is about 2 years after Vancouver started to lose their marbles. The partial inflation of the bubble after the mini bust of 2008 has not come back up to the peak of 2007.

Here is Saskatoon

Saskatoon started their ascent into bubble status at the end of 2006, beginning of 2007.  This is a full year after Calgary.

Here is Winnipeg

Winnipeg is not really considered a city with bubble status especially when compared to other cities but we do see a slow disconnect of incomes and house prices starting in the spring of 2005.

Here is Toronto

Toronto started their slow ascent into bubble status almost a decade ago.  With Toronto being a world class city, Toronto's climb into bubble status was influenced by the global housing boom.  The bubble in Toronto has been a slow ascent over many years.  Compare that to Calgary or Saskatoon which rocketed upwards in just a few short years.

Here is Montreal

Montreal started their ascent into bubble status around the spring of 2002.  This was just a few months after Toronto.

Here is Ottawa

Ottawa started their slow ascent into bubble status in the beginning of 2002.

All of these cities felt they were undervalued and we know the whole world was in a global housing boom that was fed with low interest rates, easier lending standards, a belief that real estate was a great investment and "it is different this time (or here)"

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So where did this belief that real estate was undervalued begin?

Phoenix:

The "Catch Up" Effect - Much of the current appreciation we are seeing in the Phoenix metro area can be attributed to the lackluster performance during the 80s and 90s. During that period, home prices were relatively flat, so the current rise in prices can be seen as a "catch up" effect.

Las Vegas:
Las Vegas real estate at the beginning of 2003 was undervalued

Tasmania:
Apparently the state's housing market was undervalued in the early part of 2000

South Africa in 2005:
"Why do Analysts believe South African real estate is undervalued?"

Vancouver in 2004:
"We are undervalued for Canada for the level of quality that is standard in our market and we are undervalued in relation to the low-profit margins that Vancouver developers accept."

Richmond BC
Richmond BC real estate has always been affordable and undervalued for the most part.

Montreal in 2006
Montreal’s home prices were sorely undervalued through the 1990’s.

Canadian Resort Properties in 2004
"Re/Max says the areas of Banff/Canmore, B.C.'s Okanagan Valley, and properties in Atlantic Canada are of particular interest to American and European purchasers. "Given current property values in prime international recreational destinations such as Cape Cod, Nantucket, the Hamptons, Aspen, and Vail, many of these Canadian markets are undervalued,"

United States Housing Market 2004
Bear Stearns economist David Malpass arguing that the housing market was healthy and that much of the rise in prices simply represented a "catch-up" because they had lagged behind the rise in equity prices since the mid-1990s.

Here is a quote about Saskatchewan.
"The Saskatchewan market was at least 30 to 40 per cent undervalued last year and the market has simply caught up to other areas in Canada," said Harry Janzen, executive officer of the Saskatoon Region Association of Realtors (SRAR).


So in a nutshell, the United States housing markets like California were undervalued to the rise in equity markets in the 90's.  But this was nonsense as for example, even when the bubbly equity markets popped in 2001 and San Francisco was in a recession, prices in that city increased by over 10% in the recession year.  If common sense had prevailed, the "undervalued theory would have been shot down and house prices would not have advanced.  But prices did advance fueled by emotion and credit. When the California cities rose in value, Phoenix and Vegas then undervalued to cities in California, were justified to see house prices launch.  The rest of the world saw this and they were undervalued as well and so a huge spike in prices was fine.  Vancouver and BC resorts were undervalued to other comparable world cities and world class resorts so its was normal for the rocketing of house values.  Then Calgary was undervalued and when prices cranked up higher than was justified by wages it was normal and then Saskatoon was one of the last markets to shake the undervalued status by rocketing up over 50% in just one year. The one common theme in every housing market is that the rise in houses values was not in sync with the rise in incomes ( Saskatoon has experienced house prices rise over 3 times faster than wages over the last 7 years).

By 2007 when Saskatoon was one of the last cities in the world to shake their undervalued status, some of the first cities in the world that launched their house prices had their bubble pop.  Then one by one, cities around the world had their housing bubble pop.  It really was just an equilibrium of house prices upward and it will be an equilibrium of house prices downward.

Compared to the 2000's, house prices in 1990's were undervalued, but that was because houses were considered places to live in and not really an investment like we come to believe in the last few of years.  In the 90's, investors and speculators were feeding the dotcom bubble.  After the dotcom bust and the lowering of interest rates, investors, speculators, boomers, young couples turned to real estate as the safe haven the stock market they all felt wasn't.  It did not matter if it was Phoenix, Madrid, London, Miami or Saskatoon, cities around the world had house values rise ( some doubled in a few years) without incomes or other fundamentals only supporting a small rise in values.

Now since most cities from countries that participated in the world housing boom have turned bust, I have to ask what were Canadian housing markets undervalued to in the early 2000's?  I guess that argument can not be used anymore.