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In its North American Outlook report released today, the Bank of Montreal identified price growth in Toronto’s housing market as a risk to the Canadian economy.
The benchmark price for a home in Toronto increased by 7.1 per cent year-over-year in January 2014, while the average sale price rose by over nine per cent over January 2013.
Sal Guatieri, the senior BMO economist who issued the report, wrote that this increase would risk straining affordability further and cause a correction “when interest rates normalize and the market is trying to absorb a record number of newly built condos.”
Toronto’s surging house prices were one of three economic risks identified in the BMO report. The other two risks were North American investor sentiment and consumer confidence being bogged down by uncertainty in emerging markets and the prospect of another congressional battle in the US over raising the debt ceiling.
While BMO did sound the alarm on the Toronto housing market, the report said that housing markets across the country are generally balanced with the exception of Calgary, where sellers “hold the upper hand.”
“In 2014, moderately higher long-term rates should apply a gentle brake to housing activity and price gains, even as new immigrants and echo boomers provide ongoing support,” the report said.