Sales of existing homes in the Greater Toronto Area nudged up 2.1 per cent in February compared with a year earlier, while prices continued to climb.
The latest data from the country’s most populous city, as well as other urban centres such as Calgary and Vancouver, suggest Canadian home sales fared better than some experts thought they would in February, and prices maintained their sturdy upward trajectory.
The average selling price on Toronto’s Multiple Listing Service last month was $553,193 – an increase of 8.6 per cent from a year earlier – the local real estate board said on Wednesday. The MLS Home Price Index, which seeks to create a more apples-to-apples comparison of prices over time by accounting for changes in the type and location of homes that are selling, was up 7.3 per cent.
“While the strong price growth experienced over the past year should prompt an improvement in the supply of listings, sellers’ market conditions will continue to prevail this year,” Jason Mercer, senior manager of market analysis at the Toronto Real Estate Board, said in a press release.
Canadian home prices are being watched closely, amid concern that they are overvalued. In an interview this week, Ed Devlin, the head of Canadian portfolio management at bond giant Pimco, said he expects to see prices start to dip later this year and then fall by 10 to 20 per cent in real terms over the next three to five years. He expects that mortgage rates will rise this year, and will be one of the catalysts for softer prices.
Deutsche Bank said in December that it thinks Canadian home prices are 60 per cent too high, and declared that it believes Canada is the most overvalued housing market in the world. Other observers, including Canadian bank economists and the Organization for Economic Co-operation and Development, see a much smaller degree of overvaluation but nonetheless agree that prices are too high.
In recent years, Finance Minister Jim Flaherty has been trying to take some steam out of the market to reduce the growth of house prices as well as the amount of mortgage debt that consumers are racking up. His actions precipitated a steep slump in house sales that began in the summer of 2012 and lasted through the spring of 2013. But the slump did not appear to have a major impact on prices.
Vancouver, the city that was hardest hit by the sales downturn and the least affordable market in the country, is now seeing record average selling prices for detached houses. On Tuesday, the city’s real estate board said the benchmark price for all types of residential properties rose 3.2 per cent from a year earlier, to $609,100 in February, as sales increased by 40.8 per cent.
Calgary’s real estate board said on Monday that the benchmark price of a single-family house was $482,800, up 9.1 per cent from a year earlier. Overall sales in the city rose 8.7 per cent from February 2013, and according to Bank of Montreal economists overall median prices in Calgary were up 7.6 per cent.
Real estate industry players in many major cities say that a lack of supply is buttressing prices.
“Consumers who are in the market for single family homes priced below $300,000 do not have many options, and when product does become available, it typically does not stay on the market for long,” Bill Kirk, the president of the Calgary Real Estate Board, stated in a press release.
The full national picture for February won’t be available until the Canadian Real Estate Board releases data later this month, but Bank of Montreal economist Sal Guatieri suggested in a research note that he thinks February’s market shows some momentum.
“February existing home sales in several major cities suggest the market is warming up after cooling a bit recently,” he wrote. “Wrapped up in a parka lined with cushy low interest rates, hardy Canadian home buyers have mostly shrugged at the chilly weather and high prices.” But Mr. Guatieri added in a note on Wednesday that home buyers “have yet to face the test of a meaningful climb in interest rates.”