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Toronto’s average home price set another record in January, nearing $1.3-million and marking the sharpest monthly price increase since the region’s previous real estate boom in 2017. But the local real estate board expects price growth to slow this year as the Bank of Canada gets set to hike interest rates and raise the cost of borrowing.

Last month’s seasonally adjusted price of $1,290,297 was 7 per cent higher than in December, the biggest monthly jump since the 8-per-cent gain of February, 2017, during the region’s last real estate boom, according to the Toronto Regional Real Estate Board or TRREB.

January’s price is 29 per cent higher than the same month last year when homebuying kicked into a higher gear and started pushing the typical home price in the city of Toronto and its surrounding areas of Durham, York and Peel above $1-million.

The typical home price in Durham, to the east of the city, jumped 45 per cent year-over-year to $1,056,300 in January, according to the board’s adjusted home price index. In York, to the north of the city, the home price index spiked 38 per cent to $1,409,500 and in Peel, which is northwest of the city, the home price index was up 38 per cent to $1,196,500. Home prices in the suburbs are nearing the same level as prices in the city of Toronto. (Home price indexes are an industry measure of prices that adjust for higher-priced properties.)

But the real estate board predicts home prices will not continue to rise at the same pace, especially as more buyers are getting priced out of the market. “There will be a bit of a ceiling on affordability – not only rising prices, but also higher borrowing costs over time,” the board’s chief market analyst Jason Mercer said on a call with reporters.

If interest rates rise, the board said that means some prospective homebuyers will put their purchases on hold. As well, the pool of buyers will likely be smaller because of record resales during the first two years of the pandemic. And homeowners are reluctant to put their homes up for sale because they are nervous they will not be able to find another place to live with prices soaring.

“You can’t buy what’s not available for sale,” Mr. Mercer said. “It is possible we could see month-over-month dips in average selling prices throughout the year,” he added.

TRREB forecast yesterday this year’s average selling price to reach $1,225,000, about 12 per cent higher than last year but lower than January’s level. The board predicts resales of about 110,000 this year, which is 10 per cent lower than in 2021.

In January, new listings fell 16 per cent year-over-year and resales were down 18 per cent over the same period.

According to a poll that looked at buyer intentions, detached houses in the suburbs remain the most popular type of property. The poll, conducted for TRREB by Ipsos, showed that a higher share of would-be buyers plan to focus on condos, which are generally cheaper than houses.

The poll also found that over all, the share of first-time homebuyers will likely decline, which mirrors what has been occurring across the country as homes become more unaffordable. However, that may be offset by the number of new permanent residents who indicated that they intend to buy and at a higher price point.

As for new listings, the Ipsos poll found that fewer homeowners intend to put their homes up for sale. “There still exists a vicious circle where homeowners will decide not to list because they fear they will not be able to find another home that meets their needs,” said the TRREB-Ipsos report.

The near-zero interest rates, lack of properties for sale and desire to own larger properties has driven most of the resales and prices during the pandemic’s real estate boom.

Although interest rates are expected to increase this year, borrowers have had to prove they can make their mortgage payments at an interest rate of 5.25 per cent under federal rules. TRREB said this could “mitigate the impact” of higher mortgage rates.

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