02/14/2020 11:49 EST

Canadian House Prices Overcome Stress Test, Foreign Buyer Tax, Return To Excess

The average house price has jumped 11.2 per cent in the past year.

Nuthawut Somsuk via Getty Images
House, property or real estate market price go up or rising concept, small miniature house with green line graph going up on black chalkboard.

MONTREAL ― There’s just no keeping Canada’s housing markets down ― at least not with the policies we’ve tried so far to keep property prices from overheating.

House prices in Canada have seen the fastest year-on-year growth since 2016, the Canadian Real Estate Association said Friday ― and it expects prices to accelerate further this year.

“Home price growth continues to pick up in housing markets where listings are in short supply, particularly in Southern, Central and Eastern Ontario,” CREA president Jason Stephen said in a statement. “Meanwhile, ample supply across the Prairies and in Newfoundland and Labrador is resulting in ongoing competition among sellers.”

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Although sales fell 2.9 per cent in January from a month earlier, the average resale house price was 11.2 per cent higher than a year ago, at just above $504,000. When the pricey Toronto and Vancouver markets are excluded, the average price is $395,000, up 9.7 per cent in a year.

“Price appreciation now resembles what it did prior to the implementation of the B-20 (mortgage stress test), Bank of Canada rate hikes, and Ontario’s Fair Housing Plan,” TD Bank economist Rishi Sondhi noted in a real estate outlook published earlier this week. 

At that time, British Columbia and Ontario had not yet introduced their foreign buyers’ taxes for the Vancouver and Toronto areas, which were credited with a slowdown in sales, particularly in B.C.

Markets are seeing “a larger than normal drop in new listings at this time of the year,” noted Shaun Cathcart, CREA’s senior economist. “The logic being that if you are a seller, you’re not just choosing when to list but effectively when to sell, so why not hold off until the spring when the weather is better and more buyers are looking?”

Cathcart suggested January’s sales drop was driven by this lack of available listings, and TD’s Sondhi believes this trend will continue this year, “both ... restraining sales growth and upwardly pressuring prices.”

Other market observers say the First-Time Homebuyer Incentive may also be playing a part in accelerating house prices. Though the program has seen weak interest so far from homebuyers, it may be convincing speculators to jump into the market.

Affordability to ‘erode even further’

Ottawa and Montreal saw some of the strongest price growth in January, with benchmark prices up 13.5 per cent and 9.7 per cent, respectively. Prices were largely flat in the Prairie cities, except for Regina, which saw a 6.9-per-cent price drop.

Vancouver prices are down 1.7 per cent, but with the recent jump in sales, it will likely show price growth in coming months, CREA said. And prices have returned to single-digit growth in much of the rest of B.C., including Vancouver Island and the Fraser Valley.

Sondhi noted that Montreal’s sales-to-new-listings ratio ― a measure of how many houses sell, versus how many are available ― is an “eye-popping” 95 per cent. Ottawa’s ratio sat at 97 per cent in January.

“These tight conditions should lead to prices climbing higher in coming months, with further double-digit gains seemingly on tap for places such as Toronto, Montreal and Ottawa,” he wrote in a client note Friday. “As such, affordability should erode even further in key markets across the country.”