Canada’s closely watched housing market continues to post higher-than-expected sales and price gains this fall, but increasingly, the bulk of gains are accruing in just three places: Vancouver, Calgary and Toronto.
That’s good news for those centres in the near term, but the still-hot pace is raising concerns about a potentially sharp correction the longer those markets boom amid ultra-low borrowing rates.
The Canadian Real Estate Association, or CREA, said Wednesday home sales rose more than 10 per cent last month compared to September 2013, easily topping expectations for sales to come in about 6 per cent higher. The average price of a home rose 5.9 per cent, to $408,795.
MORE: Canada’s housing boom comes down to just 3 cities
But Canada’s Big 3 housing markets are skewing average numbers across the country, pulling them up.
Excluding the Greater Vancouver and Greater Toronto markets, the average price was $325,406, up 4.5 per cent from September 2013.
“While a widening affordability gap in Canada’s largest urban centres is characterizing the national market Canadians read about daily, year-over-year house price increases in most regions of the country are presently tracking below the historical average,” Soper suggested.
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Dual market
The country’s real estate agent association said sales were down in about 60 per cent of all local housing markets last month compared to the previous month, underscoring slowing momentum in many regions.
But as home prices continue to outpace income levels in Vancouver, Toronto and Calgary, there’s a growing likelihood those cities will face “moderate declines” in average prices at some point, BMO economist Sal Guatieri said in a recent note.
Though unlikely at the moment, a spike in interest rates up from record lows would leave Toronto and Vancouver “vulnerable to severe correction,” the economist said.
MORE: What boom? Home prices under pressure everywhere east of Toronto
Speaking in Toronto on Tuesday, federal Finance Minister Joe Oliver said Canada’s housing market has split into two, divided by Vancouver, Calgary and Toronto, and everywhere else.
“There is a dual market. Toronto, Vancouver, Calgary have seen price increases that the rest of the country have not. This is something that we are of course monitoring. We take this issue seriously,” he told reporters.
Still, Oliver said he’s not overly concerned about overstretched conditions in the three cities, noting steps Ottawa has taken in recent years to tighten mortgage lending conditions.
“We’ve taken quite a number of steps in regard to the residential mortgage market and have taken the froth, we believe, out of the market,” he said.
Overall, home prices in Halifax, Ottawa and Winnipeg remained relatively flat in the third quarter, Royal LePage said Wednesday, while Regina saw price decreases. St. John’s, N.L.; Montreal, Edmonton and Vancouver experienced growth in the third quarter.
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