The housing market has entered the twilight zone

Colin Campbell on banana republics and condo lawsuits
Five houses of varying height depicting a graph

In Ottawa, the leader of the NDP—the NDP—accused the Conservative finance minister, Jim Flaherty, of “banana republic behaviour” for his efforts to intervene in the economy and influence mortgage rates.

Meanwhile, Flaherty’s one-time ally in his anti-debt fight, Bank of Canada governor Mark Carney, has declared the household debt problem solved— apparently, a debt-to-GDP ratio of 165 per cent is no longer anything to worry about.

In Vancouver, a former prime minister, Kim Campbell, made headlines this month for filing a lawsuit in which she’s trying to get out of a 2007 condo purchase and recoup a $368,000 deposit. The Canadian housing market, it seems, has entered the twilight zone.

It’s getting harder and harder to tell what’s sensical and what’s nonsensical. Even the Tory cabinet can’t seem to agree if it should be concerned about Canadians taking on big mortgages at discount rates, with the Tories’ Small Business Minister Maxime Bernier joining Thomas Mulcair in his criticism of Flaherty.

There is nothing encouraging in all this.

The eternally upbeat Canadian Real Estate Association is now forecasting a bad year ahead, with only Manitoba and Alberta expected to see sales gains.

More serious trouble can be seen in the Teranet-National Bank house price index, which recorded its sixth straight month-to-month decline in February. That has been blamed on Flaherty’s recent effort to tighten mortgage rules. Nevertheless, such price declines, coming after a long period of slumping sales, are a sign of a market that’s increasingly out of balance.

Flaherty helped create the housing bubble by relaxing mortgage rules early in his tenure and now seems intent on making sure he can at least say, “I told you so,” when trouble arrives along with rising interest rates.

Campbell’s lawsuit alleges her unit was delayed by over a year. But anyone who has bought a condo in Vancouver can sympathize with her action. A study last week estimates that 15 per cent of condos in the downtown are empty. House prices have as much to do with human psychology as they do location, and when some of our best and brightest appear to lose faith, it doesn’t bode well for the rest of us.