Canada’s housing market was expected to start cooling off—but instead it’s only getting hotter. Amid increasing uncertainty in the global economy—i.e., Brexit—Royal LePage, Canada’s largest real estate company, has updated its second-quarter housing forecast, released Wednesday, and now suggests there’s no cooling-off period in sight.
While the company originally predicted higher borrowing rates and a slowdown in soaring home prices starting in the last half of 2016, it now forecasts that the average home in Canada will cost a whopping 12.4% more by the end of the year than it did in 2015. Phil Soper, president and CEO of Royal LePage, called the double digit jump over last year’s home prices a “landmark.” “I believe it is the highest value put forward by any serious forecasting agency since the turn of the century,” he says. The most recent quarter saw home prices rise 9.2% from last year—the largest increase in five years—with the average home now costing $520,223.
Soper, along with other housing market experts, credits Brexit for keeping the market hot. The U.K. vote to leave the European Union last month kicked off a long period of uncertainty in the global economy and drove interest rates even lower than they already were. Canada is no different; this morning the Bank of Canada announced it would keep the benchmark overnight lending rate at 0.5%, just above its all-time low. And low interest rates mean cheap mortgages, which continue to fuel the white-hot housing markets, especially in Vancouver and Toronto. “Few industries are as rate-sensitive as real estate,” Soper writes in the Q2 report, which was based on survey data from Canada’s top 53 real estate markets. “We don’t see even a mild correction for either the Toronto or pistol-hot Vancouver markets in 2016.”
Along with keeping borrowing rates low for Canadians, uncertainty in the global market is expected to drive more foreign buying to real estate in Canada, which is considered relatively safe. Soper suggests foreign buying will largely impact the commercial real estate sector, with international companies setting up shop in Canada. He’s doubtful, however, that Brexit would cause an influx in foreign residential home buyers, at least not any time soon. “Behind most residential investment decisions by non-Canadians are some reason to be in Canada,” says Soper. “It could be someone going to university here or a potential business enterprise here. I don’t see there would be enough of those kinds of transactions to even measure.”
Britons may not be flooding Canada’s housing market, but foreign home-buying in the sector still appears to be on the rise. According to the report, 71% of real estate advisors in the GTA and 74% in Greater Vancouver agreed that year-over-year home purchases by international buyers is up from last year’s second quarter.
Regionally, The Toronto and Vancouver areas are still driving Canada’s housing market, with year-over-year median home prices up 10.2% and 27.5%, respectively—higher in the surrounding suburbs, including Richmond Hill, ON where prices jumped 21.3%.
While Soper describes Toronto’s real estate market growth as stable, he says, “The only market in the country, I’d characterize as unhealthy—and surprisingly it’s not Alberta (where prices are down 1.2%)—is the lower mainland of British Columbia. I believe it’s appreciating at too rapid a rate for underlying wages and salaries—for people to keep up.”
Despite increasing unaffordability, Soper says governments should not step in with “heavy-handed” tax policies, criticizing the B.C. government’s recent move to let the city of Vancouver tax vacant homes. “Levying new land transfer taxes or new tax treatments on properties in a cyclical industry like real estate, it may work for a short period of time when prices are rising rapidly, but what happens in a quieter market when prices are flat or declining?,” he says. “Governments don’t move fast enough to put them in effect one year and take them out of play the next year.”
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