Photo:James Bombales
A foreign-homebuyer tax for a large chunk of Ontario’s southern region hasn’t put a lid on home price gains in May, according to National Bank.
Home prices in the Greater Toronto Area, the main target of the levy, surged 3.6 per cent in May compared to April, according to the Teranet-National Bank House Price Index, published today.
That’s the largest month-over-month price gain for the GTA that National Bank has observed since the index launched in 2006. It’s also the greatest increase among the 12 major markets that the index tracks.
On a year-over-year basis, GTA home prices soared 28.7 per cent, also more than the appreciation recorded in the other big markets.
That helped push national prices up 13.9 per cent over the same period and 2.2 per cent from April to May.
And the heat in May wasn’t limited to the Greater Toronto Area. Eight southern Ontario markets that are also subject to the levy saw prices rise by about 18 per cent or more annually, and two even surpassed Toronto.
Chart: National Bank
Barrie led that pack with prices up a scorching 34.3 per cent, and Oshawa wasn’t far off with prices surging 32.8 per cent.
“[Ontario’s tax] had a dampening effect on sales and induced a rush to put homes on sale, but its effect on home prices remain[s] to be seen,” writes National Bank Senior Economist Marc Pinsonneault in a note provided with the May index.
One economist sees signs of trouble ahead, however. Capital Economics Senior Canada Economist David Madani, or the economist realtors love to hate, says “a correction in house prices now appears inevitable” in a response to the National Bank release.
Madani’s prediction is partly based on the sales-to-new listing ratio for the Toronto market, which is an indicator of market balance.
Generally, Toronto home prices have tracked in line with ratio readings, which divides sales by new listings and is presented as a percentage.
A ratio between 40 and 60 per cent is generally considered to suggest a balanced market. Ratios above likely mean it’s a seller’s market and below a buyer’s market.
“Overall, the incoming data suggest that the housing boom is over, with a correction in prices coming,” Madani continues.
Chart: Capital Economics
Toronto’s nosediving ratio suggests conditions are developing in the market that will give buyers an edge.
“With banks pulling back, alternative mortgage lenders getting squeezed and tighter regulatory policy curbing demand, housing will likely become a drag on the economy this year,” Madani adds.
As a result, Madani, who has been predicting a Canadian housing market crash since at least 2011, advises against any move from the Bank of Canada to hike the overnight rate, which influences the mortgage market.
The central bank appears to have suggested a future rate hike is on the table, and National Bank expects the Bank of Canada will follow through with this in October.
“We think it would be foolish for the Bank of Canada to commence with any plan to even gradually hike interest rates,” Madani states.
