What a difference a few years can make.
If you were in the market for a home in Vancouver or Toronto in January 2013, the price you’d see on the listing may well have been 25 per cent lower (i.e., six figures) than what buyers are seeing now on the same piece of property. See the chart below.
The present boom, fueled by rock-bottom interest rates among other factors, has accelerated this year, with benchmark prices climbing by double digits in the country’s biggest and priciest markets (and across pockets of their surrounding suburbs).
And that’s once again setting off alarm bells.
“The risk of a severe home price correction in B.C. and Ontario has risen to a medium probability event given the continued run-up in prices in Toronto and Vancouver,” TD economist Diana Petramala said in a new research note on Monday.
Households in those provinces “have built up the highest degree of froth in their housing market over the last decade,” she said.
The commentary follows yet another warning from the OECD of overheated housing markets in Canada – with Toronto singled out in particular for being at risk for a “sharp market correction.”
The CMHC, the federal housing agency, is also escalating its concerns, suggesting last month home prices across much of the country are overvalued.
“The evidence of overvaluation has increased since the previous assessment in Toronto, Vancouver, Montreal, Edmonton, and Saskatoon as price levels are not fully supported by economic and demographic factors,” CMHC’s chief economist Bob Dugan said.
“Problematic overvaluation conditions in local housing markets could be resolved by moderation in house prices and/or improving economic conditions.”
Should we be braced for a bust?
According to TD’s Petramala, the answer is no, but the situation bears monitoring. The country’s economy, though not exactly roaring, should plod along at a clip sufficient to keep labour conditions from worsening (with the exception of the oil patch), and mortgage payments current.
Interest rates should remain at comfortably low or “manageable” levels, though higher rates south of the border will tug borrowing rates here up a bit. All told, there will be “modest unwinding” in housing activity in Ontario and B.C. beginning in the second half of next year, Petramala predicts.
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