Photo: John P Rairdon/Flickr
As the second hottest major housing market in Canada, Toronto has been in Vancouver’s shadow for years, but the west coast city’s real estate reign may be nearing an end.
That’s according to Robert Kavcic, a senior economist at BMO, one of the country’s largest banks — and he says the shift could occur as soon as 2017.
“I think those two markets [Toronto and Vancouver] could cross over and Toronto could be the unquestioned leader six months to a year from now,” he tells BuzzBuzzNews.
The recent slowdown in Vancouver’s home sales following a new tax aimed at foreign homebuyers in Metro Vancouver and strong fundamentals in the Toronto market — such as limited low-rise supply — are supportive of such a transition, says Kavcic.
On August 2nd, the BC government enacted a 15-per-cent-tax on non-residents purchasing residential properties in Metro Vancouver. Home sales that month plummeted.
In fact, transactions in Metro Vancouver were down by more than 20 per cent on both a year-over-year and month-over-month basis in August, according to the Real Estate Board of Greater Vancouver (REBGV).
“Sales have been trending downward in Metro Vancouver for a few months,” said Dan Morrison, the board’s president, in a statement last week.
“The new foreign buyer tax appears to have added to this trend by reducing foreign buyer activity and causing some uncertainty amongst local buyers and sellers,” he added.
While prices in Metro Vancouver are still sky high — the benchmark price was $933,100 last month, up 31.4 per cent from a year ago and 4.9 per cent in three months — Kavcic expects price growth to start cooling shortly.
By early 2017, Kavcic estimates price growth will slow to the single digits in Vancouver.
“On the flipside, there’s not really much to slow Toronto at this point,” he explains. “There’s nothing on the demand side to slow it. There’s nothing on the supply side, especially for detached homes.”
In August, the average price of a detached in the GTA was $964,002, an increase of 21.5 per cent from that month last year, according to the Toronto Real Estate Board.
Low interest rates will also continue to support activity, suggests Kavcic. Yesterday, the Bank of Canada maintained the key interest rate, which influences mortgage rates (read how here), at 0.5 per cent.
“The Bank of Canada was pretty clear yesterday that interest rates are going nowhere any time soon, and we haven’t seen any other government policy intervention like we’ve seen in Vancouver,” he tells BuzzBuzzNews.
Kavcic expects the BC tax on foreign buyers to cause more non-residents to look to Toronto as well, further heating the market, but says this was already starting to happen even before the levy was imposed.
“It might add to it at the margin,” he says of the measure’s potential for causing more foreign investment in Toronto.
Kavcic’s remarks followed his note titled “Canadian Housing’s New Whipping Boy,” published this morning, which suggests Toronto may now be at the forefront of popular discussion concerning real estate in Canada.
In a separate note released alongside Kavcic’s, Douglas Porter, BMO’s chief economist, highlighted the need for action from policymakers.
“Without some kind of intervention, this [Toronto] market risks becoming a runaway train,” Porter wrote.
Kavcic agrees. But he says national measures — such as this year’s minimum downpayment increase for government-backed mortgages on homes priced $500,000 to $1 million — could have unintended consequences for other markets.
“Those are very, very blunt changes that impact the entire market across Canada,” he notes, adding a “vast majority” of local markets aren’t in need of cooling.
“Because it’s so localized, [the measure] would have to be something similar to what we saw in Vancouver.”