For the second time in a week, a Canadian bank has issued a warning about the overheating of the real estate market in Canada. A recent report from TD Bank has made headlines with predictions of a 15.2 percent drop in resale activity and a 10.2 percent drop in prices over the next two years. According to the report, “a combination of more subdued job and household income growth, rising interest rates, the recent tightening in borrowing rules for insured mortgages and fewer first time home buyers are expected to be the chief culprits behind the slowdown.” Bank of Canada Governor Mark Carney also chimed-in again with his warning that certain segments of the country’s real estate market are showing “bubble-like” characteristics.

While there is always room for caution, it is certainly worthwhile to take a deeper dive into the numbers, rather than only reviewing national averages in a country with significant regional variances. According to CIBC World Markets economist Benjamin Tal, “any statement based on average numbers can be hugely misleading.”

There is no denying that Vancouver and Toronto have been experiencing a vibrant appreciation in average home prices; however, pulling these two markets out of the national averages paints a significantly different picture. According to Globe and Mail writer Steve Ladurantaye, “While the average house price is still climbing by 8.6 percent on a year-over-year basis, that number drops to 5.6 percent if you exclude Vancouver. Pretend Toronto doesn’t exist either, and you get to 3.7 percent.” Ladurantaye also points to the fact that average prices in the Vancouver market get skewed due to its “high end” of the property market, as the high dollar property sales ratchet up the average prices. Even more variance is evident when you compare multi-family and single-family average prices. From this, it is clear that even at a metropolitan market perspective, the analysis of averages must be kept in context and broad generalizations avoided.

Economists rely on a multitude of metrics for forecasting, and some ratios such as price-to-income or price-to-rent currently indicate a frothy, if not bubbling housing market in Canada. However, even if a correction is imminent, the sensationalized bubble bursting scenarios are not necessarily looming. Many experts have indicated that a Canadian housing market correction would most likely be caused by spiking interest rates, but Benjamin Tal is among the experts that doesn’t foresee this occurring. “In Canada, a sharp and brisk tightening cycle is unlikely. The market expects a gradual increase in short-term rates in the coming years,” according to Tal. But moving along to the next expert opinion, the report from TD Bank indicates that “a disruption in employment in Canada due to unanticipated global shock is probably a higher risk than a spike in interest rates at this stage.” It seems that if an interest rate spike doesn’t materialize to pop the bubble, then the bubble bursting hinges on a global shock.

Shocks, spikes, and other negatives aside, reports of recent housing starts indicate healthy activity levels, while employment reports show steady job growth in Canada. Although interest rate increases are certainly on the horizon, underlying economic fundamentals suggest a gradual rise and not a spike. And although global shocks are always a possibility, Canada’s housing market has proven to be resilient in times of economic challenges.

Perhaps a lacklustre headline predicting a “moderation in appreciation of home prices” just won’t attract the attention of the masses. Let us know what you think?

Tim Bailey is general manager of AVID Canada, the leading provider of customer loyalty research and consulting to the home-building industry. Through the AVID system, home builders improve referrals, reduce warranty costs, and strengthen their brands. He can be reached at tim.bailey@avidratings.ca.