Majority of Consumers Now See Canadian Home Prices Rising

(Bloomberg) -- Expectations for Canada's housing market are heating up, with more than half of respondents in a weekly telephone survey predicting home prices will rise, the first time the measure has topped 50 percent in records dating back to 2008.

The bullishness comes even as a run on deposits at Toronto-based mortgage lender Home Capital Group Inc. leads to heightened scrutiny of a market which policy makers have said is divorced from economic fundamentals. The broad Bloomberg Nanos Canadian Confidence Index fell to 59 in the week ended March 5.

Some 50.1 percent of respondents said they expect local home prices to rise. The figure has climbed for six straight weeks and is higher than the average for the series of 37.1 percent. The percentage of people surveyed in the week ending May 5 who said local home prices will decline in the next six months slid to 10 percent from 10.7 percent.

“Consumer sentiment on real estate has gone from hot to hotter,” said Nanos Research Group Chairman Nik Nanos.

Housing has led the world's 10th largest economy over most of this decade as exporters have struggled. The latest burst of housing momentum has led policy makers to question whether it's being led by supply and demand or by speculation.

The Ontario Securities Commission opened hearings into whether Home Capital failed to properly disclose an internal probe into fraudulent mortgage applications, a shakeup in a nation lauded for having the world's safest banks.

The latest Toronto figures also showed prices up 25 percent in April from a year earlier, still close to the 30 percent March pace that Ontario Finance Minister Charles Sousa called unsustainable on April 20 when he imposed a foreign buyers tax.

Those events haven't led to more bets on a price decline either, and housing optimists now outnumber pessimists by a factor of five to one.

Real estate may have also played a role in the regional breakdowns, with confidence highest in Ontario and British Columbia. Vancouver's housing surged last year before the B.C. government put in measures to cool the market.

Housing was the only upbeat note in the latest survey, with declines in three other major categories of job security, personal finances and the overall economy. The 22.4 percent who saw a stronger economy in six months was the lowest since January.

The confidence index is based on telephone polling with a four-week rolling average of 1,000 respondents, and is considered accurate within 3.1 percentage points, 19 times out of 20.

--With assistance from Erik Hertzberg

To contact the reporter on this story: Greg Quinn in Ottawa at gquinn1@bloomberg.net.

To contact the editors responsible for this story: Theophilos Argitis at targitis@bloomberg.net, Chris Fournier