Canadian home prices set to rise again despite central bank warning

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OTTAWA – Home prices in Canada are set to rise further in the coming months, as investors and first-time buyers scramble to buy before interest rates rise, ignoring a warning from the Bank of Canada that there is a high risk of sudden price drops.


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Central bank deputy governor Paul Beaudry on Tuesday asked potential homebuyers to consider whether it was “the right time to buy or not,” highlighting the buoyant market in some cities and the resurgence of investor activity.

These conditions could “expose the market to a higher probability of a correction,” he said.

Last month, the Bank of Canada signaled that the overnight rate, currently at a record low of 0.25%, may start to rise in the “middle quarters” of 2022. Another rush purchase is probably already underway, analysts said.

“Every time interest rates start to rise, people enter the market, including investors. So you will see an acceleration in activity over the next few months, ”said Benjamin Tal, deputy chief economist at CIBC Capital Markets.


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Home prices in Canada climbed 31.6% year-on-year in March to an all-time high before easing slightly over the summer. Prices are picking up again, with the October average price just barely below the March peak.

The rating agencies take note of this. Fitch pegged Toronto’s housing market at 32% overvalued and Vancouver’s at 23%. Moody’s Analytics also overvalued Vancouver 23%, Toronto 40% and Hamilton 73%.

The average price of a home in Toronto, Canada’s largest city, reached C $ 1.2 million in October, up 19.3% from the previous year, and single-detached homes are in now averaging C $ 1.5 million.

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Canadian Prime Minister Justin Trudeau has pledged to act on the fleeing market, but critics note that prices have risen 77% nationwide since taking office in 2015.


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Toronto mortgage broker Ron Butler says he’s getting busier every hour with clients desperate to enter the market.

“We see it, literally, every hour here… people who just gave up and say, ‘The prices are going to go up forever, I have to buy now,'” he said.

Butler said he was working with a longtime tenant in Toronto who has been waiting for years for prices to drop before he can enter the market. Now he’s buying an hour’s drive west in Hamilton because he’s worried he’ll never own a home otherwise.

Fear “is not a good motivator when buying a home,” Butler said, adding that investors are also increasingly seized with “fear of missing something,” or FOMO.

Butler estimates that investors – those who buy properties to rent or hold them for speculative purposes – account for around 25% of housing demand at this point, with that number being much higher in large cities and especially on condominium pre-sales markets.


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The Bank of Canada has said investor purchases have doubled since the start of the COVID-19 pandemic, but economists see demand continuing.

“We don’t expect a collapse. But we expect prices to be close to stability next year, ”said Jimmy Jean, chief economist at Desjardins Group in Montreal, adding that demand should remain“ fairly decent, ”pointing to strong immigration.

Doug Porter, chief economist at BMO Capital Markets, also expects a short-term “rate hike rush”, but only then a moderate pullback in markets that have been supercharged by the pandemic.

“The history of the past 15 years has been littered with those who repeatedly call for a Canadian real estate crash to be denied,” Porter said.



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