The Canadian real estate market is confusing enough without having to look at it from a global standpoint. However, sometimes you have to look at the bigger picture to help put things in perspective. According to the Knight Frank Global House Price Index, Canada is sitting at the bottom of a global housing slowdown.

In 49th place of 56 housing markets, the report which tracks annual house prices by country shows that Canadian home prices in the second quarter of 2019 inched up by just 0.5 percent compared to 2018. However, despite this news, there is hope that the Canadian real estate market is looking up.

Home Pricing Holding Steady

Although the Knight Frank report shows we took quite the tumble, compared to a few years ago, we weren’t as bad as markets that reported declines such as Morocco, Italy, Finland and Australia. As well, according to the Canadian Real Estate Association National home sales held steady for November with activity up by 12.9% year-over-year, although there was a slight decline compared to October by 1.8%. The good news is the actual national average sale price rose 5.8% year over year.

Accelerated Sales in Vancouver and Toronto

Looking at those driving markets that have proven to be key to Canadian real estate, Toronto and Vancouver, they also saw accelerated sales activity according to the Huffington Post. This indicates recovery according to Robert Hogue, a senior economist for RBC. “Canada’s housing market correction is over, and the recovery is on.” So, things are truly looking up.

The Financial Post reported Canada’s realtors have been enjoying great performance going back to September, another sign the market is strengthening. B.C. was at the head of the charge, and weakness is only apparent in our oil-producing regions.

Steady Interest Rates

This info aligns with other factors that point to recovery from the slump we experienced in the beginning of 2019. According to the Financial Post, this includes the Bank of Canada’s decision to hold interest rates as is despite what is happening around the world.  “Home sales activity and prices are improving after having weakened significantly in a number of housing markets,” says Gregory Klump, chief economist at the Ottawa-based realtor group in a statement to the Financial Post. “How long the current rebound continues depends on economic growth, which is being subdued by trade and business investment uncertainties.”

Bubble Risk in Canada

On a less positive note, according to the UBS Global Real Estate Bubble Index, risk of the real estate bubble in Toronto is the second highest in the world. The index looks at areas with the highest overvaluation of housing prices. Toronto was second to Munich and sitting in the company of Amsterdam and Hong Kong, which tied for third.

Vancouver actually saw improvements. The index reports areas that are experiencing consistent mispricing in real estate markets. One of the things they consider is what they call a “decoupling” of prices from local incomes and rents as well as issues in the economy such as higher instances of lending or what’s going on with construction activity.

Toronto Housing Crisis

It’s no secret Toronto suffers from unaffordable-housingitis. According to the Toronto Housing Markets Analysis, renters who are trying to save to buy in the GTA have to wait from 11 to 27 years just to for a 10 percent down payment on the average priced home. As well, unfortunately, Toronto’s rental market is not keeping pace with need. The majority of the purpose-built rental housing in Toronto was built during the “postwar rental apartment boom” of the 1960s and 1970s. Of the available units, over 90 percent were built pre-1980.

Drop in Prospects

According to Mortgage Brokers News, not surprisingly, contributors to the Index report say when there is low affordability, it causes issues for people who can’t afford to live in an area. Head of Swiss & Global Real Estate Claudio Saputelli and Head of Swiss Real Estate Investments Matthias Holzhey stated in the Index report: “If employees cannot afford an apartment with reasonable access to the local job market, the attractiveness and growth prospects of the city in question drop.”

The Mortgage Brokers article says that in markets that experience overvaluation, the expected drops can lead to managing curb price appreciation by taking regulatory measures. This is to help correct overheated prices. According to the Index, when looking at 2016 top rankers, they all experienced price drops at an average of 10 percent.

Real Home Prices Rise

As well, the Canadian cities in the Index between 2000 and 2018 saw real home prices rise by more than 5 percent each year in Vancouver and Toronto. “The introduction of taxes on foreign buyers, vacancy fees and stricter rent controls seem to have taken effect,” says the report. “While the average price level in Toronto has remained broadly unchanged from last year, prices in Vancouver are down by 7 percent. Lower mortgage rates are supportive but cannot outweigh lower economic growth.”

However, when it comes to Canada, in general, it really only is Vancouver and Toronto at risk of real estate bubbles.

Favourable Financing Conditions

In these expensive cities, the Index finds favourable financing conditions are not helping. This is one of the reasons home prices are staying high, even though in most cases affordability is one of the things that should, in theory, impact financial conditions. It’s a puzzler.

Although many are atremble thinking about the American housing market tragedy that occurred when the bubble burst, Canadians have some differences that might help. For example, we are seeing lending growth on par with GDP growth. This was not the case as the Great Financial Crisis in the U.S. crept up on everyone.

There, outstanding mortgage volumes increased up to 2.5 percent faster than GDP. We don’t seem to be seeing such an issue which is a hopeful sign for the Canadian real estate market and the state of our economy as well.