Parts of the Canadian housing market that most worried policy makers are now seeing significant price gains.
Back when former finance minister Jim Flaherty moved to take some steam out of the market in mid-2012, he and economists expressed an especially high level of concern about two key areas: Vancouver, which had the most overvalued home prices in the country, and condos in Toronto, which were rapidly multiplying.
The cautionary comments from Mr. Flaherty and others, coupled with mortgage insurance rule changes that he imposed, fuelled a deceleration in both areas. But, as Bank of Montreal economist Robert Kavcic writes in a research note, they’re back.
“Two pockets of the Canadian housing market that were all but left for dead are now seeing prices gain momentum in a major way,” Mr. Kavcic writes.
“In Vancouver, which endured a mild correction from mid-2012 through 2013, prices are up 5.2 per cent year over year. Toronto condo prices are now up 4.4 per cent year over year, the strongest clip in 2.5 years, despite concerns about oversupply (there are a lofty 57,000 units currently under construction versus just 7,000 [detached homes]).
“Note that over the past six months, prices in both of these markets have jumped more than 8 per cent annualized, and nobody will pretend that’s a rate sustainable for long from current levels,” he adds.
A caveat: Mr. Kavcic is using price data from the Canadian Real Estate Board’s home price index. It doesn’t include newly-built homes, which are a major factor in Toronto’s ever-expanding condo market.
Some observers have said that existing condos in the city appear to be performing better than those that are just coming on the market. “The new condo market is increasingly finding it more difficult to compete with condos on the resale market, which are both larger and cheaper,” economists at Toronto-Dominion Bank said in a research note this spring.
According to RealNet Canada Inc., the index price of a new condo in Toronto has risen by just 1 per cent over the past year.
Source: Tara Perkins @ The Globe & Mail