Home prices continue to reach new heights in the country’s biggest and most expensive cities, monthly data shows, as agents price “aggressively” and interest rates remain ultra low.
In Toronto, prices rose 8.6 per cent in February according to that city’s local real estate board, which released its monthly tally Wednesday.
A day earlier, numbers out of Vancouver showed home prices across all housing types (condo, townhouse, semidetached and detached) rose 3.2 per cent to $609,100 as sales increased by more than 40 per cent year over year.
Calgary, meanwhile, saw prices climb 9.1 per cent in February, to $482,800.
READ MORE: January price gains strain affordability in big city housing markets
The price gains come amid a growing chorus of opinions predominantly from outside the country warning of an impending price correction.
This week, Pimco, the world’s largest bond fund, said it expects home prices to fall by as much as 30 per cent, and that it expects the slowdown to “start this year.”
READ MORE: House price correction to ‘start this year,’ big-name investor warns
‘Aggressive pricing’
An online poll published by Bank of Montreal on Wednesday suggested there’s an even bigger appetite among would-be home buyers this year to enter bidding wars against rival buyers to win a property.
| ‘SPECULATION’ IN CALGARY Twenty one offers were made on a scrap heap of a home in Calgary last month destined for a brand new two-storey house to take its place. The lot sold for $650,000, or $100,000 over asking price. “Developers are getting a little nervous about how much they’re paying for land,” says Thomas Ferianec, a Re/Max realtor and owner of newinfills.ca, which builds new homes on old lots. The steady and sharp appreciation of prices in Calgary in the past year – one of the best-performing real estate markets in the country – is putting pressure not just on home buyers but developers, too, to pony up big and often borrowed sums of money to buy a property. “The numbers keep climbing and climbing and climbing. With today’s prices, if you’re developing you have to build in some speculation,” Ferianec said. The average home price is now 4.7 times the average annual household income, according to U.S. consultancy Demographia, a gulf that suggests home prices could be overvalued by as much as 30 per cent. But strong job and income gains – combined with low borrowing rates – has kept the market humming in 2014. There is some reservations forming, though. “This year we’re a little bit more nervous because you wonder when affordability is going to start pushing back,” Ferianec said. |
Such sales, where a firm deadline is set by an agent for potential buyers to file bids, have become the norm in big markets like Toronto. Some critics say the sales tactic incites buyers to bid up home prices.
Get weekly money news
But Jethro Seymour, a realtor in mid-town Toronto, says with the number listings tight and demand still so high, multiple bids are an inevitable outcome.
Another factor pushing up prices are ultra low borrowing rates being offered by brokers and banks.
“The driver is low interest rates I believe,” Seymour said.
READ MORE: Bank of Canada holds rate steady at 1%
And rates don’t appear poised to be heading up any time soon. The Bank of Canada kept its benchmark rate at 1 per cent on Wednesday – where its been since September 2010 when policy-makers were attempting to prop up economic growth.
While mortgage rates aren’t set by the BoC, it does influence them.
Central bank sees ‘soft landing’
The central bank said Wednesday it still expects the housing market to cool gradually rather than crash.
The test will be when mortgage rates begin to rise, a development that could make payments on inflated mortgages difficult for many.
Experts say they expect mortgage rates to begin grinding gradually higher later this year, something that will almost certainly take steam out of the market.
“Canadian home buyers have mostly shrugged at the chilly weather and high prices,” BMO economist Sal Guatieri said in research note.
But many “have yet to face the test of a meaningful climb in interest rates.”
Comments