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Toronto and Vancouver were often flagged for “overheating” in recent years, but as they’ve burned out, other Canadian markets have taken up the torch, according to the nation’s largest financial co-op.

“The Toronto market is no longer as overvalued owing to the price adjustment, but Ottawa and Montreal are now overheating,” reads a Spotlight on Housing report by Desjardins economists.

February home sales plunged 32.8 percent on a year-over-year basis in Vancouver and 2.4 percent in Toronto amid a flurry of headwinds: higher interest rates, mortgage stress tests, provincial taxes that have turned off foreign investors and, yes, the weather.

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Weak demand has led to collapsing prices in Vancouver and in Toronto, which is currently weathering the storm, flattening home values. The benchmark price of a Vancouver home fell 6.1 percent, while Toronto’s was up a meagre 2.7 percent.

Ottawa and Montreal, however, have only gotten hotter. Home prices surged 7.1 percent in Ottawa and 6.3 percent in Greater Montreal in January, the most recent month that the Canadian Real Estate Association (CREA) has numbers for.

Now, the two main markets are firmly planted in overheated territory, at least according to one common measure. The Canada Mortgage and Housing Corporation suggests a market is overheated if its sales-to-new listings ratio surpasses the 70 percent threshold. A ratio of 100 percent would mean that homes are selling as fast as they are being listed.

In Ottawa and Montreal, the sales-to-new ratio is above 75 percent. “Sales and prices are rising for the same reasons: buyer demand is strong and fewer properties are available for sale,” notes Desjardins.

According to separate analysis from Scotiabank Economics, the elevated sales-to-new listings ratios in Ottawa and Montreal are supportive of further price gains in the near term. “Ottawa and Montreal are both well into seller’s market territory,” Marc Desormeaux, a Scotiabank economist, recently told Livabl.

Desjardins says that eventually, the Quebec market, which is largely impacted by what plays out in its biggest city, Montreal, should cool somewhat as the effects of five Bank of Canada overnight rate hikes between summer 2017 and October 2018 are felt.

“Credit-sensitive consumer spending, such as on vehicles and furniture, is already stalling. Sooner or later, the real estate market will too,” the Desjardins report states. “Home sales should be somewhat weaker in 2019 and price increases will be more modest, but the level of activity will continue to be high from a historical perspective.”

Desjardins says Ontario’s 2019 outlook “is more favourable than last year,” as it has had time to adjust to a new interest rate environment, mortgage stress testing and provincial intervention in the housing market, including the foreign-homebuyer tax for the Greater Golden Horseshoe. “It remains to be seen what direction the market will take in the coming months,” reads the report.

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