BUSINESS

When It Comes To Soaring House Prices, Canada’s #1

We led the world in house price growth in Q1, but the party may be over.

09/01/2017 08:53 EDT | Updated 09/01/2017 08:54 EDT
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Canada has seen the fastest house-price growth among the major economies of the G20, a new report says. But with Toronto's housing market entering a slowdown, it's unlikely the country will repeat the trick in the future.

The Bank for International Settlements (BIS) reports that global house prices rose at a pace of around 4 per cent in the first quarter of this year, in both the advanced economies and the emerging economies of the G20.

Canada's price growth more than quadrupled that rate, growing 16.2 per cent in that time. The Great White North came in ahead of second-place China and third-place Australia.

BIS

Much of that meteoric rise came from Greater Toronto, which experienced rapid house-price growth in the first quarter of this year. In March, the last month of the quarter, Toronto's average house price was up 33 per cent compared to a year earlier.

But all that came to a sudden halt in April, when Ontario's provincial government introduced a dozen new measures for the Greater Golden Horseshoe area designed to cool prices. Among them is a 15-per-cent foreign speculators' tax and expanded rent controls.

Watch Ontario Premier Kathleen Wynne announce the province's new housing measures:

The average house price in Toronto has been in decline ever since. According to preliminary data from the city's real estate board, the average price of a detached home in the Greater Toronto region fell back below $1 million in August.

Tougher federal mortgage rules are also helping to soften the market, inside and outside of Toronto. The federal Liberals last fall introduced a stress test for borrowers of insured mortgages, requiring them to qualify at a the Bank of Canada's posted mortgage rate, which is roughly two percentage points higher than the rates offered by lenders today.

That stress test has had a notable impact on the market. Canada Mortgage and Housing Corp. reported this week that the volume of mortgages it insures plunged by 33 per cent in the second quarter of this year, compared to the same period last year.

Rising interest rates promise to add further pressure to house prices. The Bank of Canada hiked its key lending rate in July for the first time in seven years, and mortgage lenders reacted by hiking their own rates.

More interest rate hikes on the way


In a report this week, TD Bank estimated that mortgage rates have already risen by 0.4 percentage points since the start of July, and it expects mortgage rates to rise another 0.45 percentage points by the end of next year.

"This is moderate by most standards, but will still crimp demand," economists Beata Caranci and Diana Petramala wrote.

The TD economists are forecasting a "soft landing" for the housing market in the wake of tougher provincial and federal rules. They expect Canada's average house price to decline by 1.6 per cent next year, led by a 5.8-per-cent decline in Toronto.

But they also see a return to house price growth in 2019, with the average price rising 1.7 per cent, helped along by a 2.1-per-cent rebound in Toronto.

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