Ian Austen – New York Times

Marie-Yvonne Paint, a real estate agent in Mon­treal, has the kind of prob­lem most of her coun­ter­parts in the United States can only dream about.

“We have a short­age of inven­tory right now,” said Ms. Paint, who focuses on the exclu­sive and expen­sive munic­i­pal­ity of West­mount. “It’s very annoy­ing. We have buy­ers ready to buy and not much to show.”

Ms. Paint’s expe­ri­ence is not an iso­lated exam­ple. Like most of the world, Canada’s real estate mar­ket slumped dur­ing the reces­sion. But now, instead of wor­ry­ing about the recov­ery of the real estate mar­ket, some Cana­di­ans are con­cerned about the prospect of a price bubble.

The Cana­dian Real Estate Asso­ci­a­tion reported that the aver­age price of exist­ing homes rose 19.6% in Jan­u­ary com­pared with those in the month a year ear­lier, the lat­est in a string of sub­stan­tial gains dat­ing back through last autumn. By con­trast, the aver­age price of exist­ing homes rose 2.6% in the United States in the same period, accord­ing to the National Asso­ci­a­tion of Realtors.

Such dras­tic per­cent­age gains are not just a reflec­tion of the market’s ear­lier depths. In some Cana­dian cities, par­tic­u­larly Toronto and Van­cou­ver, prices appear to be head­ing toward record levels.

“It’s no sur­prise the hous­ing mar­ket responded to low inter­est rates,” said Craig Alexan­der, the deputy chief econ­o­mist of the Toronto-Dominion Bank. “The real ques­tion is what’s going to hap­pen in the next year. It can’t con­tinue at the cur­rent pace, oth­er­wise a bub­ble will form.”

Cana­dian home buy­ers, of course, are not unique in hav­ing access to low-interest mort­gages. But Mr. Alexan­der and oth­ers attribute the Cana­dian market’s revival to a series of mea­sures that ensured that the reces­sion in Canada did not turn into a real estate disaster.

Per­haps chief among them is the country’s retail bank­ing sys­tem, which is effec­tively an oli­gop­oly dom­i­nated by five national banks, includ­ing Toronto-Dominion.

Most of the time, that arrange­ment is less than pop­u­lar among Cana­di­ans, who think that a lack of com­pe­ti­tion leads to, among other things, low inter­est rates on sav­ings and high ser­vice fees.

Pub­lic resent­ment has repeat­edly caused politi­cians to block merg­ers between the banks. But in the lead-up to the credit cri­sis, the closed-shop nature of bank­ing in Canada proved to be the government’s, and the economy’s, best friend.

Mind­ful of gov­ern­ment over­sight, Cana­dian banks by and large avoided the struc­tured debt prod­ucts that imper­iled many of their Amer­i­can coun­ter­parts. They also main­tained com­par­a­tively tight con­trols on mort­gage lend­ing to con­sumers. When zero per­cent down pay­ments on mort­gages were widely avail­able in the United States, Cana­di­ans were typ­i­cally required to put down at least 10%. American-style amor­ti­za­tion peri­ods stretch­ing beyond 25 years were also rel­a­tively unknown in Canada.

“In Canada, stan­dards got nowhere near as low,” said Tim­o­thy D. Hockey, the chief exec­u­tive of TD Canada Trust, Toronto-Dominion’s Cana­dian retail bank­ing oper­a­tion. “When the cri­sis came upon us, the stan­dards didn’t have to change.”

One result of that, said Phil Soper, the pres­i­dent and chief exec­u­tive of Brook­field Real Estate Ser­vices of Toronto, is that the slump in hous­ing starts and exist­ing home prices was delayed by about a year in Canada until late 2008. Then, when inter­est among buy­ers began to return last year, Canada’s still-healthy banks were able to pro­vide mort­gages, and hous­ing prices were not depressed by a glut of defaulted prop­er­ties in forced sales.

“One of the things we see in Amer­i­can busi­nesses that we don’t see in our Cana­dian busi­nesses is a will­ing­ness to really push the lim­its,” said Mr. Soper, whose oper­a­tions include Royal LeP­age, one of Canada’s lead­ing real estate bro­kers. “When bub­bles burst, some­times the tur­tle wins.”

While demand from buy­ers has returned, most real estate ana­lysts agree that sell­ers have been slower to move. There are a vari­ety of the­o­ries for that reluc­tance. Win­ter is not seen as a opti­mal sea­son for sell­ing homes in most parts of the coun­try, given Canada’s climate.

Some econ­o­mists spec­u­late that many sell­ers are hold­ing out for more defin­i­tive signs of a mar­ket come­back. And oth­ers think that many sell­ers have delayed putting their homes on the mar­ket because they are under­tak­ing repairs prompted by recently expired home ren­o­va­tion tax cred­its that were part of Canada’s eco­nomic recov­ery plan.

But what­ever the cause, the expec­ta­tion — or per­haps the hope — is that the arrival of spring and the upward trend in prices will inspire increas­ing num­bers of peo­ple to list their homes. The increase in sup­ply, in turn, should pre­vent prices from esca­lat­ing to bub­ble lev­els. January’s sta­tis­tics, both for resales and hous­ing starts, sug­gest that pat­tern may be developing.

But Mr. Soper is among those who cau­tion against read­ing too much into the cur­rent mar­ket buoy­ancy about long-term price trends.

“Cana­di­ans in the finan­cial and real estate sec­tors feel a lit­tle bit smarter than they should about the strength of the econ­omy and indus­try over the last few years,” he said. “Cer­tainly the under­ly­ing econ­omy isn’t strong enough to sup­port the prices we’ve seen over the last few weeks.”

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