As Canada’s two hottest housing markets continue to smolder, CMP checked in with two of the industry’s leading economists about whether it’s sustainable – and what, if anything, the government should do to intervene
Michael Campbell, Verico’s economist, was blunt when asked about the current state of real estate prices in Vancouver.
“Is it sustainable? Absolutely not,” he tells CMP. “You’re compounding at a rate of 15% to 17%, so we’re not going to continue that growth rate, that’s for sure.”
Vancouver sales volume increased 18% year-over-year in April, and prices skyrocketed 30% for the same period – and things got even hotter in May, according to Dominion Lending Centres chief economist Dr. Sherry Cooper.
“Last month’s sales were 35.3% above the 10-year sales average for May, [which] ranks as the highest sales total on record for that month,” Cooper says. “While demand is very hot, the total number of listings in Metro Vancouver has declined 37.3% from a year ago, helping to explain some of the upward pressure on price. Home prices in Greater Vancouver are up a stunning 48.3% in the past three years, and the one-year change has been close to 30%. The numbers are similar for the Lower Mainland as a whole. The price gains are even larger for single-family detached homes, as supply is very limited.”
In Toronto, the market snapshot is similar, although not quite as scorching: April sales shot up by 11% year-over-year, and the average price rose by 15% – and again, both saw another spike in May.
“In Toronto … the activity and price increases are slightly less frenzied, which isn’t saying much, as multiple offers and paid prices well over asking have become increasingly common,” Cooper says. “The Toronto Real Estate Board reported a new record month for May sales, up 10.6% from a year ago, as the number of new listings was down 6.4%. The excess demand in the Greater Toronto Area continues to push prices higher and, in some
cases, to create panic buying.”
Escalating prices seem to show no signs of slowing in the two cities, which has many potential homebuyers calling for action from the Canadian government. But as with any public policy, the solution is never easy.
“Nothing can be done without consequences,” Campbell says. “For example, the Conference Board of Canada yet again confirmed that BC will lead the country in growth. Last year, the country created 144,000 new jobs, and BC had 110,000 of them. “What can governments do?” he continues.
“It’s overblown what people think they can do. They’ve already done something: They created record-low interest rates. That has pushed a huge amount of money into the market at the lower end. A 1995 condo, on a five-year mortgage average rate with a price of $250,000, [has the same monthly payment as] a [current] five-year mortgage for a $450,000 home.”
Trying to manage housing prices could impact a huge number of Canadians, he points out – many of whom simply don’t want prices reined in.
“People looking to get into the market want lower prices; people who currently own property don’t,” Campbell says. “It’s humorous to see people who say [the government has] to do something about these prices. Ask them if they would offer their home for about $1 million less, because that would really help. Of course they don’t. They don’t see it personally.”
Sellers who are relying on their home appreciation to fund their retirement are particularly wary of any efforts to cool the market, Campbell adds.
“A lot of people on the retirement side of things need their homes to sell at these prices because [their returns] due to record-low interest rates [are] so much less than when they started planning for retirement, so they need a much higher asset level. That’s a group that actually needs these prices.”
Cooper points out that many ideas have been proposed to keep prices in check in the country’s two hottest markets.
“Housing affordability is plunging in both regions, and there has been a rising number of voices calling for government action of some sort,” she says. “Some have suggested an increase in the minimum down payment, tightening credit conditions or a rise in the cost of CMHC mortgage insurance
– all of which would hurt first-time homebuyers the most, exacerbating affordability. As well, the idea of action to slow foreign buying – such as, for example, a luxury tax – has also been floated.”
But again, the answer is not that simple.
“This is a very tricky issue,” Cooper says. “The strength in housing [in these two regions] has been a key underpinning to economic growth this cycle. As well, 70% of Canadian households own their own homes, and home equity is, for most people, the largest component of household wealth, so the government is leery about triggering a collapse in housing. Nonetheless, housing growth this strong does not usually end well.”
“Is it sustainable? Absolutely not,” he tells CMP. “You’re compounding at a rate of 15% to 17%, so we’re not going to continue that growth rate, that’s for sure.”
Vancouver sales volume increased 18% year-over-year in April, and prices skyrocketed 30% for the same period – and things got even hotter in May, according to Dominion Lending Centres chief economist Dr. Sherry Cooper.
“Last month’s sales were 35.3% above the 10-year sales average for May, [which] ranks as the highest sales total on record for that month,” Cooper says. “While demand is very hot, the total number of listings in Metro Vancouver has declined 37.3% from a year ago, helping to explain some of the upward pressure on price. Home prices in Greater Vancouver are up a stunning 48.3% in the past three years, and the one-year change has been close to 30%. The numbers are similar for the Lower Mainland as a whole. The price gains are even larger for single-family detached homes, as supply is very limited.”
In Toronto, the market snapshot is similar, although not quite as scorching: April sales shot up by 11% year-over-year, and the average price rose by 15% – and again, both saw another spike in May.
“In Toronto … the activity and price increases are slightly less frenzied, which isn’t saying much, as multiple offers and paid prices well over asking have become increasingly common,” Cooper says. “The Toronto Real Estate Board reported a new record month for May sales, up 10.6% from a year ago, as the number of new listings was down 6.4%. The excess demand in the Greater Toronto Area continues to push prices higher and, in some
cases, to create panic buying.”
Escalating prices seem to show no signs of slowing in the two cities, which has many potential homebuyers calling for action from the Canadian government. But as with any public policy, the solution is never easy.
“Nothing can be done without consequences,” Campbell says. “For example, the Conference Board of Canada yet again confirmed that BC will lead the country in growth. Last year, the country created 144,000 new jobs, and BC had 110,000 of them. “What can governments do?” he continues.
“It’s overblown what people think they can do. They’ve already done something: They created record-low interest rates. That has pushed a huge amount of money into the market at the lower end. A 1995 condo, on a five-year mortgage average rate with a price of $250,000, [has the same monthly payment as] a [current] five-year mortgage for a $450,000 home.”
Trying to manage housing prices could impact a huge number of Canadians, he points out – many of whom simply don’t want prices reined in.
“People looking to get into the market want lower prices; people who currently own property don’t,” Campbell says. “It’s humorous to see people who say [the government has] to do something about these prices. Ask them if they would offer their home for about $1 million less, because that would really help. Of course they don’t. They don’t see it personally.”
Sellers who are relying on their home appreciation to fund their retirement are particularly wary of any efforts to cool the market, Campbell adds.
“A lot of people on the retirement side of things need their homes to sell at these prices because [their returns] due to record-low interest rates [are] so much less than when they started planning for retirement, so they need a much higher asset level. That’s a group that actually needs these prices.”
Cooper points out that many ideas have been proposed to keep prices in check in the country’s two hottest markets.
“Housing affordability is plunging in both regions, and there has been a rising number of voices calling for government action of some sort,” she says. “Some have suggested an increase in the minimum down payment, tightening credit conditions or a rise in the cost of CMHC mortgage insurance
– all of which would hurt first-time homebuyers the most, exacerbating affordability. As well, the idea of action to slow foreign buying – such as, for example, a luxury tax – has also been floated.”
But again, the answer is not that simple.
“This is a very tricky issue,” Cooper says. “The strength in housing [in these two regions] has been a key underpinning to economic growth this cycle. As well, 70% of Canadian households own their own homes, and home equity is, for most people, the largest component of household wealth, so the government is leery about triggering a collapse in housing. Nonetheless, housing growth this strong does not usually end well.”
