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“We expect declining affordability to help gradually cool the early-2016 surge in Vancouver’s, Victoria’s and Toronto’s housing markets, despite their solid employment growth this year,” says Scotiabank’s Global Outlook.
In a separate report, BMO recently highlighted job creation in Toronto and Vancouver as a major driver of surging prices in these markets, noting a quarter of all jobs in the country are based in the two cities.
Employment in June grew 6.3 per cent in Vancouver, compared to that time last year, and 2.1 per cent in Toronto looking at the same time frame, according to Statistics Canada’s latest Labour Force Survey, released today.
In Scotiabank’s forecast report, which covers everything from North American industrial activity to housing, the bank noted the impact these cities, with their high employment and real estate activity, are having on a broader level.
“National home sales are currently supported by elevated activity in BC and Ontario, especially in and around Vancouver and Toronto,” says Scotiabank.
The average price of a Canadian home in May was $509,460, which is 13.2 per cent more expensive than a year earlier, according to the most recent numbers from the Canadian Real Estate Association.
But remove Greater Toronto and Greater Vancouver from calculations and the average price falls to $375,532, up 9.1 per cent year-over-year.
“However, (Toronto and Vancouver) are beginning to show early signs of levelling off as rapid and sustained price gains erode affordability,” Scotiabank continues.
Speaking to BuzzBuzzHome News recently, Diana Petramala, a TD real estate economist, explained how high prices, such as in Vancouver, where the benchmark price of a detached home was $1,561,500 in June, can eventually cause even investors to turn attention elsewhere.
“Prices are pretty bid up,” said Petramala of Vancouver. “What investors probably are looking for are places that have more upside potential,” she explains.
That’s relatively good news for those concerned about skyrocketing home prices there, and comes in the wake of a proposal from Vancouver Mayor Gregor Robertson to tax investors for letting their houses sit empty.
As the resale housing market cools, Scotiabank predicts builders will pull back on construction of new homes.
The bank is predicting housing starts will reach around 190,000 units this year, shy of 2015’s total of 196,000.
CMHC, which tracks construction progress of homes from coast to coast, defines a start “as the beginning of construction work on a building, usually when the concrete has been poured for the whole of the footing around the structure.”
For 2017, Scotiabank is calling for starts to slump to 180,000 units. “Softening rent growth and rising rental vacancy rates point to a reduced pace of apartment construction, a major driver of starts in recent years,” the bank explains.