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, Feb. 16, 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 8 percent in January compared to a year ago, while the national average home price soared 17 percent.
But it was the sales figures for Vancouver and Toronto that drew considerable notice from economists.
The Multiple Listing Service benchmark price—a figure that CREA says is more representative of the market—rose to $775,300 in Greater Vancouver, an increase of roughly 21 percent compared to January 2015. In greater Toronto, the benchmark price climbed roughly 11 percent 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 has 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 percent.
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.”