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Are Toronto and Vancouver headed for a housing boom?

A real estate sign that reads “For Sale” and “Sold Above Asking” stands in front of housing in Vaughan, a suburb in Toronto, Canada, May 24, 2017. (REUTERS/Mark Blinch)
A real estate sign that reads “For Sale” and “Sold Above Asking” stands in front of housing in Vaughan, a suburb in Toronto, Canada, May 24, 2017. (REUTERS/Mark Blinch)

On Wednesday, the Canadian Real Estate Association (CREA) released its October home sale numbers. The results for the month show that while home sales are up in the country, prices are on the rise too.

National home prices are up 5 per cent on average in October year-over-year, the CREA reports, and month-over-month sales were up 0.9 per cent, even though new listings for the month were down 0.8 per cent.

But in some of the hottest markets in Canada, the price increase was much more dramatic compared to October 2016.


Vancouver saw a whopping 20.5 per cent price increase year-over-year.

The statistics corroborate a report from Benjamin Tal, deputy chief economist at CIBC World Markets, Inc., who forecasts Vancouver and Toronto are both headed for a housing boom.

“We are in the midst of an important transition period in the trajectory of the Canadian housing market in general, and Vancouver and Toronto in particular,” writes Tal in a note to investors.

Tal points to the likelihood that things will stabilize in the short term, thanks in part to regulatory measures enacted in both cities to cool the housing markets. However he predicts that we’re heading into a period where supply is short, which will force prices to rise even higher.

For a brief period after the Foreign Homebuyers Tax was levied August 2016 in Vancouver, the real estate market did cool. But a slow creep has been evident in the region. A similar pattern is visible in Toronto, too, which enacted foreign buyer taxes April 2017.

“The Ontario government’s Fair Housing Plan coincided with the market’s gravitational forces already in place, and led to an even more dramatic adjustment than seen in Vancouver,” writes Tal. “But again, without dealing with the real fundamental issues facing the GTA, these changes are only able to provide temporary relief as evidenced by the recent recovery in the GTA.

“In many ways, what we have seen in Toronto in the past six months is the undoing
of the unexplainable surge in activity in 2016.”

Altogether, it’s not a particularly optimistic view for potential homebuyers.

“At this point we do not see any real relief. In fact, the opposite is the case,” writes Tal. “Without significant changes to land and rental policies alongside a dramatic change to housing preference among buyers, those centers will become even less affordable.”

Not all experts agree with Tal, however.

“The recent slump in home sales, increases in interest rates and tougher mortgage financing rules will cause a further slowdown over the remainder of this year and well into next year,” wrote David Madani, senior Canada economist at Capital Economics, in a research note, according to The Canadian Press.

2018 will also see one other regulatory measure that could keep a housing boom at bay. Upcoming changes to mortgage rules that will include a mandatory stress-test for both insured and non-insured mortgages will take effect as of Jan. 1, 2018. Market demand is one thing, but as the stress-test affects how much people are able to spend on mortgages, it’s anybody’s guess exactly how the 2018 housing market will shake out.

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