Uncertainty over big city property prices in CanadaCanada’s major real estate markets, led by Toronto and Vancouver, are seeing price rises, especially in prime property, but there are worries about oversupply and interest rate rises Low interest rates and listings shortages are lifting property values in Canada’s big cities, but experts are divided about how the market will perform in future. A combination of overbuilding and gradually rising interest rates, will lead to a cooling in home price growth in the new homes sector, with condo prices falling 2% next year, predicts TD Bank, while agent, Royal LePage sees Canadian home values reaching 5.1% in 2014. However, for the present, prime sales are booming, with sales of $1million-plus homes up around a third a year, says luxury agent, Sotheby’s International Realty. TD Economist, Diana Petramala, says major cities of Vancouver and Toronto, which are popular targets for overseas investors, where prices are already high, are vulnerable to a cool down. “The Canadian housing market is still estimated to be moderately overpriced and overbuilt, the consequences of which will likely be felt beginning in 2015, reflecting the impact of gradually rising interest rates. “Vancouver, Toronto and Victoria are flagged as markets which are more vulnerable-than-average to a cool down period in light of their recent strength and our assessment of degree of over-valuation. Yet, even in those markets, prospects for a gradual rise in interest rates and relatively stable employment point to orderly adjustments over the medium term with some over-valuation persisting.” Overbuilding and oversupply is likely to cut condo prices in the big cities, says TD Economic Analyst, Admir Kolaj. “The market is still considered to be at least moderately overbuilt. Many of Canada’s biggest cities are already flush with condos for sale and still have a record number of units under construction, many of which will end up on the market once completed. “Over the medium term, we believe that overbuilding, along with a gradually rising interest rates, will lead to a cooling in home price growth. In particular, we expect the condo market, which makes up the majority of the new home market, to experience a decline in prices of about 2% next year.” Canadian agent, Royal LePage says the average price of a home in Canada rose from 3.9%-5.2% in the second quarter of 2014 – and will reach 5.1% for the full year, it estimates – more than previously thought. President and Chief Executive, Phil Soper, says, “Compared to other major forecasts, our year-beginning national outlook predicted a higher level of 2014 average price appreciation, yet supply constraints in a handful of our largest cities necessitate a revision upwards. But the agency also believes that the big city markets, including Toronto, Vancouver and Montreal, will see home price growth declining. “Looking ahead to 2015, we expect house prices to track more closely to the rate of general economic growth. That is, we see price increases in Canada’s largest cities moderating, just as our smaller city markets should see a lift.” According to the latest Royal LePage House Price Survey and Market Survey Forecast, there were price increases for all housing types, with detached bungalows seeing the highest year-over-year gains at 5.2% to an average price of CAN$406,454. Standard two-storey homes rose 5.1% year-over-year to CAN$440,972, while condominiums posted gains of 3.9% to CAN$258,501. “A closer look at Canada’s residential real estate market points to a tale of two city types, in which big city housing activity represents a small part of the picture but accounts for a large part of the gains in national average home prices. “The shortage of detached single-family houses once again led to significant price growth in Toronto. In Calgary, new listings could not keep up with strong demand from a briskly expanding workforce, driving near double-digit price growth. “Vancouver, which just last year was seeing year-over-year price declines, is now posting mid-single digit appreciation in the detached home categories, pushing regional price averages up to record heights. While the Montreal market recorded lower price gains than its large metropolitan counterparts, real estate demand experienced a renewed thrust following the provincial election in April with signs of a brighter market ahead for the sector.” In contrast, smaller city markets are seeing far more moderate house price gains. In Ontario, regions outside Toronto such as London posted year-over-year price increases of 2.2% and 2% for detached bungalows and standard two-storey homes, respectively, while Ottawa remained relatively flat at 1.3% and 0.8% in the same categories. “Chronic supply shortages are driving price spikes in Canada’s major cities, masking otherwise moderate home price appreciation nationally,” says Mr Soper. “While a widening affordability gap in Canada’s largest urban centres is characterizing the national market Canadians read about daily, year-over-year house price increases in most regions of the country are presently tracking below the historical average.” But the agency says calls for government measures to cool the market are not needed. “Casual market observers have renewed calls for policy intervention to cool Canada’s real estate industry. We have supported most of the recent federal regulatory changes aimed at managing housing demand. “At this time, we feel a move to further restrict access to home ownership is not warranted. Such policy would inevitably operate as a blunt instrument, causing unintended hardship to young Canadian homebuyers and the millions living outside a handful of our biggest cities.” As OPP Connect reports, just as in California, USA, Canadian sales of luxury homes priced at least CAN$1million are sharply up by around 32% year-on-year – with strong international demand, says a top prime agent. The best results came in Toronto and Vancouver with annual rises of more than one-third (34%) in the first half of 2014, compared to a year earlier, according to Sotheby’s International Realty Canada. Calgary sales of CAN$1million-plus homes rose 17% and Montreal completions increased by 11%. “Given strong economic fundamentals, increased consumer confidence and mortgage lending rates that remain at historical lows, all markets are expected to gain momentum in the latter part of 2014. International demand is also expected to remain strong across Canada’s major metropolitan markets,” says Sotheby’s. There were no signs of a condo bubble in the nation’s most active markets of Toronto, where sales of $1-million-plus condos were up 53% annually and Vancouver, where they have risen 37%. Ross McCredie, Chief Executive of Sotheby’s International Canada told Yahoo.ca, “People are realising that a big chunk of their net worth is in real estate and they’re renovating to increase that. You also have a lot of wealthy international buyers. Canada’s seen as a stable and safe place to invest.” By Adrian Bishop, Editor, OPP Connect Twitter: @oppnews
Posted on: Thu, 07 Aug 2014 17:31:27 +0000
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