Photo: Arthur Gouveia/Flickr
As the dust settles from Brexit, the Bank of Canada will wait longer to hike the overnight rate, encouraging the fevered pace of activity in the country’s hottest housing markets to continue through 2016, says a new Royal LePage report.
“Economic and social disruptions have rocked the world once again, introducing new risks and making it very likely that the Bank of Canada will leave interest rates as-is for now,” says Phil Soper, Royal LePage’s president and CEO, in a statement.
As a result, the national real estate brokerage is upgrading its outlook for the average price of a Canadian home, including condos and one- and two-storey houses. It now expects it to soar to $563,000 by the end of Q4, up 12.4 per cent year-over-year, according to its latest Market Survey Forecast.
“I believe it is the highest value put forward by any serious forecasting agency since the turn of the century,” says Soper of Royal LePage’s projection.
Growth will be centred in Greater Vancouver and the Greater Toronto Area, with relatively flat or declining prices expected across Canada’s other major markets.
Royal LePage expects Greater Vancouver prices to skyrocket 27 per cent year-over-year to $1,206,000 by the fourth quarter’s close, the most rapid appreciation of all nine markets the report tracks.
At the end of the same period, Royal LePage predicts the average price of a GTA home will reach $718,000, up 14.9 per cent from a year earlier.
“Few industries are as rate sensitive as real estate. We don’t see even a mild correction for either the Toronto or pistol-hot Vancouver markets in 2016,” he adds.
Previously, Royal LePage had said the Canadian housing market would likely show signs of cooling this year, based on the expectation that interest rates would begin to rise, dampening activity, following a Bank of Canada overnight rate hike.
The Bank of Canada sets the overnight interest rate, which influences lending rates for mortgages. (Read a detailed explanation here.)
Already this year, Royal LePage has noted strong price growth in Greater Vancouver and the Greater Toronto Area.
The aggregate price of a Greater Vancouver hit $1,098,599 in Q2, up 24.6 per cent from that time a year ago. Like the forecast figures, the aggregate includes one- and two-storey homes as well as condos. Royal LePage calculates aggregate prices via a weighted average of median home values.
At the second quarter’s end, the GTA aggregate home price was $656,356, an increase of 10.2 per cent over that time last year.
Edmonton, walloped by the effect of low oil prices on energy sector employment, a major supporter of its housing market, is forecast to be the only market to see the average price fall.
At year’s end, the average price of a home in Edmonton is projected to have sunken to $376,700, down 1 per cent from 2015.
“Canada is not one homogeneous housing market, but rather a mosaic of many different real estate stories,” explains Soper.
“While low interest rates remain the primary driver of Canada’s sustained real estate market expansion, home price trends are increasingly influenced by local factors, from the lift provided by wealthy immigrants to the drag felt by the depressed energy sector,” he adds.
The brokerage franchise, which has more than 600 locations across Canada, is calling for price growth between 1 and 3 per cent in the Greater Montreal Area, Winnipeg, Ottawa, Regina, Halifax and Calgary.
Royal LePage’s Brexit theory echoes comments one observer made following the UK’s recent referendum vote to leave the European Union.
Still others have linked Brexit to a possible influx of foreign capital into Canadian real estate, but Soper thinks if this happens, it won’t really affect the housing market.
“We anticipate the impact, if any, will be seen in the commercial property sector,” says Soper.