The explosive growth in home prices in Vancouver and Toronto continued unabated in November, new numbers from the country’s real estate board show — likely further fanning worries about potentially sharp drops to come in those markets.
Declines are already underway elsewhere, thanks to cooling economic conditions amid a deepening slump in commodity prices.
Benchmark home prices in the Vancouver area surged 17.8 per cent last month compared to prices found a year ago, while index prices were 10.3 per cent higher in the Toronto area.
Those blistering gains pulled the national benchmark price 7.1 per cent higher – the largest gain in over five years, according to the Canadian Real Estate Association.
The average home price in Canada rose to $456,186 last month. Yet if Vancouver and Toronto are removed from the equation, the average drops to $338,969, a level consistent with cooling housing markets outside those regions.
“The gain reflects a tug of war between strong average price gains in housing markets around the [Greater Toronto Area] and the Lower Mainland of British Columbia versus flat or declining average prices elsewhere,” CREA said.
If the provincial numbers for B.C. and Ontario are excluded from the calculations, the average home price slips even lower to $302,477, the association said, representing a year-over-year decline of 4.7 percent.
Hit hard in recent months by falling oil prices, Calgary continued to cool down significantly last month.
Benchmark prices declined 2 per cent in November compared to a year earlier. Other resource-reliant markets, like Saskatoon and Regina, also saw declines.
“Activity was down sharply in the Calgary region compared to what were historically high levels posted prior to the collapse in oil prices,” CREA said.
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Fears over a possible real estate bubble in the Vancouver and Toronto areas have risen significantly as prices have surged. What’s fueling the torrid price gains remains a matter of fierce debate, but many suspect a wave of foreign cash is playing a key inflationary role. Rock bottom interest rates are also continuing to fuel domestic demand.
“An influx of foreign wealth is one driving force, but lower interest rates — and the witches’ spell of forever-low rates—are also stirring the pot,” Sal Guatieri, economist at BMO, said in a recent note.
The federal government is taking steps to drain some momentum out of the country’s frothiest housing markets, announcing last week changes to mortgage lending rules that lift minimum down payment requirements on homes listed above $500,000. The new rules take effect Feb. 15.
“Recently announced changes to mortgage regulations will likely boost sales activity in the short term, as buyers jump off the fence to beat the changes before they take effect next year,” Pauline Aunger, president of the national real estate body, said.
WATCH: Finance Minister Bill Morneau talks to Tom Clark about housing affordability and how he got the math wrong on the cost of the middle-class tax cut.