Change in tone

Months of smug, rah-rah, our market’s different from every other area with a housing boom in the world coverageĀ are followed inevitably by:

Scotiabank:

[T]here is growing evidence of overvaluation in home prices in some parts of the country — a precursor to a period of softening conditions… the further domestic home prices climb above underlying economic fundamentals, the greater the risk of an eventual correction.

RBC:

the portion of before-tax income going towards home ownership costs suffered one of its largest and most broadly based quarterly deteriorations in the current housing cycle stretching back to the mid-1990s.

Don’t worry too much, though, because the magic of new 30-, 35-, 40-year mortgage options will keep those buyers coming without any price erosion. Right? And Canadians are so prudent with their finances, unlike those spendthrifts next door, right? Well… Toronto is a world-class city…

…research done by CIBC World Markets suggests that Torontonians are more inclined than most of the rest of the country to use their homes as automated banking machines, or ABMs, from which they can draw cash

Household debt ratios, which show the amount of debts compared to assets, are higher in Toronto than in any other city except Montreal, economist Benjamin Tal said.

And the borrowing activity has fuelled much of Toronto’s consumer strength, he added.

“We estimate that at least one-third of this money goes toward spending. Clearly, credit has been important in supporting spending, no question about it.”

Let’s remember, though, that Toronto’s still the economic star of Eastern Canada. The dollar has battered the local economy, and we underperform every city west of Windsor, but:

“The strong Canadian dollar and weak U.S. demand (for manufactured goods) has dampened Toronto’s outlook,” the [Conference Board] report states. However, strong employment outside the manufacturing sector has kept the city’s growth from falling further.

Industries such as financial services, now facing new challenges, and, well, housing itself, which has apparently so far “muted the impact” of the decline in manufacturing and export-oriented jobs. To recap: the Toronto housing market continues to be hot because the local economy is being kept afloat by the housing market. Does that sound sustainable to you?