Toronto housing market correction

Photo: James Bombales

Both Vancouver and Toronto showed signs of cooling after their respective provincial governments introduced foreign-homebuyer taxes for the cities and their environs — and chances are, the similarities won’t end there.

So suggests BMO Senior Economist Sal Guatieri in a recent research note.

“Seemingly ignoring the government’s Fair Housing Plan, new condo sales in the Toronto CMA blasted to record highs of 12,138 in Q2, a whopping 62 [per cent] above year-ago levels,” Guatieri writes in the note, titled “Toronto’s Sky-High Condos.”

The economist observes that the number of condo projects launched over that period “surely helped,” but for Guatieri, the Toronto condo market’s recent performance means one thing:

“More evidence that Toronto’s housing ‘correction’ is likely to follow in Vancouver’s soft-landing footsteps… barring an economic shock.”

Some have suggested that Ontario’s Fair Housing Plan, which the foreign-homebuyer tax is part of, will have a greater impact on the market than BC’s foreign-buyer tax for Metro Vancouver did.

That’s because the former measure comes in an environment of rising interest rates following the Bank of Canada’s decision last month to increase the overnight rate by 25 basis points, the first hike in seven years.

Regardless, Vancouver’s condo market has shown resilience of late, a year after BC first introduced its levy of 15 per cent on foreign homebuyers.

It helped lift prime residential real estate prices in Vancouver by 7.3 per cent on a quarter-over-quarter basis in Q2, according to real estate consultancy Knight Frank.

None of the 40 other markets Knight Frank tracked over that period could match that growth.

Now, it appears Toronto’s condo market is also displaying signs of persistent demand.

In the second quarter, inventory levels sunk to a 15-year low, according to the latest figures from condo market research firm Urbanation.

This pushed prices up 28 per cent annually “after controlling for unit size,” says Guatieri, even as the Toronto housing market reacted to Ontario’s sweeping policy measures.

It remains to be seen what role higher interest rates will play.

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