TORONTO – Surging sales in the piping hot real estate markets of Toronto and Vancouver recently prompted certainly one of Canada’s big banks to convey concerns Tuesday the cities may be at risk of a house price correction.
The Canadian Real Estate Association reported Tuesday that sales of existing homes rose by eight per cent in January over a last year, as the national average home price soared 17 percent.
But it had been the sales figures for Vancouver and Toronto that drew considerable notice from economists.
The average sale price in greater Vancouver rose 32.3 percent year-over-year to nearly $1.1 million, during greater Toronto it climbed 14.2 per cent to $631,092.
The Multiple Listing Service benchmark price – an amount that CREA says is more associated with the market – rose to $775,300 in great Vancouver, a rise of roughly 21 per cent compared to January 2015. In greater Toronto, the benchmark price climbed roughly 11 percent year-over-year to $578,400.
TD economist Diana Petramala said a few of the strength in the Toronto and Vancouver markets might have been bolstered by buyers looking to get into the market before new mortgage down payment rules took effect Monday.
New federal regulations require larger deposit on homes that cost between $500,000 and $1 million.
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“While we continue to think that things just can’t get any hotter, markets in B.C. and Ontario still prove us wrong,” Petramala said in a note to clients.
Petramala said although foreign investment and immigration are likely to provide support towards the Toronto and Vancouver markets in the months ahead, she raised concerns about whether sky-high home values in those regions are sustainable in the long run.
“Every month of double-digit home price growth raises the chance of a deeper home price correction down the road,” Petramala said.
A correction is defined as a drop in worth of at least 10 per cent.
Every month of double-digit home price growth raises the chance of a deeper home price correction on the road
The price gains in Vancouver and Toronto fuelled a rise in Canada’s national average home price in January to $470,297, CREA said.
When excluding Ontario and Bc, however, the typical sale price actually edged lower by 0.3 percent from the year ago to $286,911.
Regional differences stemming from the impact from the oil price shock are likely to continue throughout this year, said BMO economist Robert Kavcic.
“Those markets exposed to oil costs are correcting,” he explained inside a note.
“The uber-tight big-two cities are benefiting from lower rates of interest than we otherwise would have seen had oil prices not fallen, while other people are scattered among.”
On a month-to-month, seasonally adjusted basis, CREA says national home sales rose 0.5 per cent in January, compared to December of last year.
Meanwhile, the amount of new listings on MLS declined by 4.9 percent in January compared to December.
“Tighter mortgage regulations that work in February may shrink the swimming pool of prospective homebuyers who qualify for mortgage financing and cause national sales activity to help ease in the months ahead,” CREA chief economist Gregory Klump said inside a statement.
