Is a housing price correction coming in Toronto and Vancouver?

January sales figures for Vancouver and Toronto draw considerable notice from economists

An aerial view of housing is shown in Calgary on June 22, 2013. The Canadian Real Estate Association expects average house prices in Alberta, Saskatchewan and Newfoundland and Labrador to fall next year because of the downturn in the oil industry.The association is estimating Alberta's average housing price will fall in 2016 by 2.5 per cent. THE CANADIAN PRESS/Jonathan Hayward

An aerial view of housing is shown in Calgary on June 22, 2013. THE CANADIAN PRESS/Jonathan Hayward

TORONTO — Surging sales in the piping hot real estate markets of Toronto and Vancouver last month prompted one of Canada’s big banks to express concerns Tuesday that the cities may be at risk of a home price correction.

The Canadian Real Estate Association reported Tuesday that sales of existing homes rose by eight per cent in January compared to a year ago, while the national average home price soared 17 per cent.

But it was the sales figures for Vancouver and Toronto that drew considerable notice from economists.

The average sale price in greater Vancouver rose 32.3 per cent year-over-year to nearly $1.1 million, while in greater Toronto it climbed 14.2 per cent to $631,092.

The Multiple Listing Service benchmark price — a figure that CREA says is more representative of the market — rose to $775,300 in great Vancouver, an increase of roughly 21 per cent compared to January 2015. In greater Toronto, the benchmark price climbed roughly 11 per cent year-over-year to $578,400.

TD economist Diana Petramala said some of the strength in the Toronto and Vancouver markets may 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 down payments on homes that cost between $500,000 and $1 million.

“While we continue to believe that things just can’t any hotter, markets in B.C. and Ontario continue to prove us wrong,” Petramala said in a note to clients.

Petramala said although foreign investment and immigration are likely to provide support to the Toronto and Vancouver markets in the months ahead, she raised concerns about whether sky-high home prices in those regions are sustainable over the long term.

“Every month of double-digit home price growth raises the risk of a deeper home price correction down the road,” Petramala said.

A correction is defined as a drop in value of at least 10 per cent.

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 British Columbia, however, the average sale price actually edged lower by 0.3 per cent from a year ago to $286,911.

Regional differences stemming from the impact of the oil price shock are likely to continue throughout this year, said BMO economist Robert Kavcic.

“Those markets exposed to oil prices are correcting,” he said in a note.

“The uber-tight big-two cities are benefiting from lower interest rates than we otherwise would have seen had oil prices not fallen, while everyone else is scattered in between.”

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 number of new listings on MLS declined by 4.9 per cent in January compared to December.

“Tighter mortgage regulations that take effect in February may shrink the pool of prospective homebuyers who qualify for mortgage financing and cause national sales activity to ease in the months ahead,” CREA chief economist Gregory Klump said in a statement.

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Is a housing price correction coming in Toronto and Vancouver?

  1. Well….what is the answer? Is a correction coming or not? The article simply noted the facts of life. Money, especialy foreign money, is being parked in real estate. And where does the smart money from overseas choose to park their money? Well in strong cities of course.
    Maybe an article on how this will affect citizens of these cities. Do we sit back and let “investors” dictate our future? Or do we try and manage the change? In the short term of course, citizens are being priced out of the market and must migrate elsewhere. Maybe our Torontonian children will move to Calgary where house prices are cheaper. Especially if their employment skills will allow them to make it worth while. Changes the fabric of our society as one consequence.

    • Yes. At the end of the day, the new mortgage rules don’t do anything to the housing markets that are based on overseas investors, since putting down $1 million is of now consequence, so in the end, citizens will remain, perhaps permanently, priced out of the market

      • And the weak loonie is basically like putting out a “for sale – discounts for foreign currency” sign.

    • Perhaps your Torontonian children will meet my Vancouverite children in Calgary :-(.

      “Do we sit back and let “investors” dictate our future?”

      If you ask me, no! BC homes for BC residents. Ditto for Ontario.
      We need to get a handle on the extent that offshore money is distorting the housing market and deal with it accordingly. At present, we have no idea how much offshore money is coming in, let alone what it’s doing to the housing market.

      My totally gut feel is that we should at a minimum follow Australia’s lead and limit foreign investors to newly built houses and condo units. For ridiculously priced locales such as Vancouver and Toronto, an argument can be made for extending that to all houses and condo units.

  2. .
    Canada needs foreign ownership controls same as most other nations have.

    Canadians cannot possibly compete against Peoples’ Republic of China capital which is subsidized by a lack of human rights, worker rights, democratic representation, environmental protection, a free-floating currency and free markets.

    That capital is also tainted with embezzlement from a corrupt Communist Party of China and its State-Owned Enterprises, as well as staight-up criminal money laundering. If you don’t believe this, then ask yourself why Canadian and PRC authorities are cooperating on investigating Chinese expat embezzlement, on Canadian soil.

    As the Peoples’ Republic of China’s long-awaited collapse becomes ever more likely, the flood of dirty money out of China to Vancouver and Toronto will increase.

    This is Unsustainable Competitive Advantage and it has to be stopped by trade re-regulation, finance re-regulation, and foreign ownership restrictions.

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