Soaring housing prices in the Greater Toronto Area have triggered fresh warnings about the market spiralling out of control.
The GTA’s benchmark price for various types of housing sold last month hit $705,900, up 22.6 per cent from one year earlier and a 60.8-per-cent surge compared with five years ago, the Canadian Real Estate Association said on Wednesday. The industry’s benchmark price depicts typical properties sold.
Opinions vary on the role of robust demand versus scarce listings, but experts are worried about the GTA’s skyrocketing prices.
The Ontario government needs to relax restrictions on the Greenbelt – protected land on the fringes of the GTA – to allow developers to increase housing supply, said Wendell Cox, an Illinois-based urban-policy consultant at Demographia and a senior fellow at Winnipeg-based Frontier Centre for Public Policy.
“When you have a boiling pot and you put a lid on it, the pressure only gets worse,” Mr. Cox said in an interview. “Unless land-use policies are reformed to allow for sufficient supply in the urban fringe, prices will continue to go up. What you have in economics is demand and supply, and you need to have those two in balance.”
Bank of Montreal chief economist Douglas Porter said the supply side plays a supporting role in helping drive up GTA prices, arguing the main factors are low interest rates, steady population growth and sizzling demand from domestic and foreign buyers. He said there is an extreme imbalance between the GTA’s roaring sales and limited listings.
“Let’s drop the pretense. The Toronto housing market – and the many cities surrounding it – are in a housing bubble,” Mr. Porter said in a research note. “Everyone may have a slightly different definition of what a bubble is, but most can agree it’s when prices become dangerously detached from economic fundamentals and start rising strongly simply because people believe they will keep rising strongly, encouraging more buying.”
John Pasalis, president of brokerage Realosophy Realty Inc. in Toronto, is also sounding the alarm. “You need to be cautious if you’re buying now, and be careful what you’re spending because the market looks very heated and GTA prices are arguably going up too fast,” Mr. Pasalis said in an interview. “The problem with our prices has just as much to do with domestic speculators as foreign ones.”
Average prices are also up sharply. The GTA saw the residential price for properties sold last month average $770,745, or a 22.1-per-cent gain compared with January, 2016, according to CREA.
“When you have home prices going up 20 [per cent] to 30 per cent a year, it’s inflated and not sustainable. This isn’t a normal rate of growth. You are more likely to have a market that is more vulnerable in the future to have a sharper decline,” Mr. Pasalis said. “If it keeps going up for too long, it won’t end well. If it keeps going at 25 per cent a year for another year to two, it will end terribly.”
The pricing rally has spread beyond Toronto. In the Niagara region, for instance, the price for various housing types averaged $337,561 last month, or a 25.7-per-cent jump from a year earlier, CREA’s statistics show.
By contrast, the Vancouver area’s sales began cooling off last April, and the slowdown continued after the B.C. government implemented a 15-per-cent tax on foreign home buyers in the region in August.
With fewer luxury detached houses selling, the price for residential properties trading hands last month in Greater Vancouver averaged $878,242, down 18.9 per cent from a year earlier. The region had a benchmark price of $896,000 last month, up 15.6 per cent from January, 2016.
The GTA had one of the highest month-over-month price gains in January among 13 metropolitan markets tracked by CREA through its index. The benchmark price of $705,900 for various types of GTA properties sold in January was up 1.5 per cent from December.
Oakville-Milton in Ontario saw a 2.1-per-cent benchmark-price increase last month versus December, while Victoria experienced a 1.5-per-cent gain and Guelph, Ont., went up 1.4 per cent.
The national composite price for 13 major markets reached $551,400 last month, up 0.72 per cent from December and a 15-per-cent jump from January, 2016.
Ten of the 13 key markets showed gains in January compared with the same month in 2016, led by Oakville-Milton, the B.C. Fraser Valley, the GTA and Victoria.
Seasonally adjusted, sales volume covering about 100 Canadian markets slipped 1.3 per cent in January versus December.
“Despite January’s decline in activity, Canadian existing-home sales are still well above their long-run average, underscoring our view that tighter mortgage regulations may temper housing demand in 2017, but are unlikely to derail it,” Toronto-Dominion Bank economist Diana Petramala said in a note. “Over all, the biggest factor expected to cool housing demand in 2017 will be higher mortgage rates.”Report Typo/Error