Canadian housing prices are set to surge again in the coming months as investors and first-time buyers scramble to buy before interest rates go up, ignoring a warning from the Bank of Canada that there is a high risk of a sudden price drop.
Central bank Deputy Governor Paul Beaudry told would-be home buyers on Tuesday to consider if it is a “good time to buy or not,” pointing to market frothiness in certain cities and renewed investor activity.
Those conditions could “expose the market to a higher chance of a correction,” he said.
The Bank of Canada last month signaled the overnight rate, currently at a record low 0.25%, could start rising in the “middle quarters” of 2022. Another rush to buy is probably already under way, analysts said.
“Whenever interest rates start rising, people get into the market, including investors. So you will see an acceleration in activity over the next few months,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets.
Canadian house prices skyrocketed 31.6% year-over-year in March to hit a record high before softening a bit over the summer. Prices are now accelerating again, with October’s average price barely below the March peak.
Ratings agencies are taking notice. Fitch has pegged Toronto’s housing market at 32% overvalued and Vancouver’s at 23%. Moody’s Analytics also has Vancouver 23% overvalued, Toronto 40% and Hamilton, Ontario, 73%.
The average price of a home in Toronto, Canada’s biggest city, hit C$1.2 million ($947,493) in October, up 19.3% from the previous year, and detached homes now average C$1.5 million.
Canadian Prime Minister Justin Trudeau has pledged to act on the runaway market, but critics note prices have climbed 77% nationwide since he took office in 2015.
Toronto mortgage broker Ron Butler says he is getting busier by the hour with clients desperate to get into the market.
“We see it, literally, hourly here … people who have simply given up and say: ‘The prices are going to go up forever, I have to buy now,'” he said.
Butler said he is working with one longtime Toronto renter who has been waiting years for prices to fall so he could get into the market. Now he is buying an hour’s drive west in Hamilton because he is worried he will never own a home otherwise.
Fear “is not a good motivator when you’re buying a house,” said Butler, adding that investors too are increasingly gripped by the “fear of missing out,” or FOMO.
‘RUSH TO BEAT RATE HIKES’
Butler estimates that investors – those who buy properties to rent out or to hold for speculative gains – make up about 25% of housing demand at this point, with that number far higher in major cities and particularly in pre-sale condo markets.
The Bank of Canada said investor buying has doubled since the onset of the COVID-19 pandemic, but economists see demand holding up.
“We don’t expect a collapse. But we see prices being close to flat next year,” said Jimmy Jean, chief economist at Desjardins Group in Montreal, adding that demand is expected to remain “pretty decent,” pointing to strong immigration.
Doug Porter, chief economist at BMO Capital Markets, also expects a short-term “rush to beat rate hikes,” but then only a moderate pullback in markets that were supercharged by the pandemic.
“The history of the last 15 years has been cluttered with those calling for a crash in the Canadian housing market to be proved wrong time and time again,” Porter said.
($1 = 1.2665 Canadian dollars)
(Reporting by Julie Gordon in Ottawa; Additional reporting by Steve Scherer; Editing by Steve Scherer and Peter Cooney)
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
