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Briefing highlights

  • Toronto area home prices soar
  • Interest costs to rise: RBC
  • What to watch for today
  • Torstar names new CEO
$1.57-million
Average price of detached Toronto home

The average price of a detached Toronto home has cracked the $1.5-million mark for the first time, and the neighbours couldn’t be happier.

The average in the core 416 area code surged to $1.57-million in February, up 29.8 per cent from a year earlier and up from $1.34-million in January, according to the Toronto Real Estate Board.

The suburbs are also hopping, with the average price of a detached home in the 905 regions surging 35.4 per cent from a year earlier to $1.11-million, and compared with $999,102 in January.

The February statistics are certain to raise more concern about a frothy Toronto market that Bank of Montreal has already declared a bubble.

The effects are rippling out across southern Ontario, too, with prices soaring in communities that surround Toronto, where affordability is an ever-mounting issue.

“In a nutshell, it’s probably the best time to be selling a house in Toronto in 30 years (possibly even longer if we had the data),” said BMO senior economist Robert Kavcic.

“Sales remain strong, brushing aside Ottawa’s 2016 mortgage rule changes, and supply is drum tight.”

Realtors want the province to open more land for development, complaining that lack of supply is the issue, while the federal government is attacking demand with mortgage and tax measures.

Some economists, though, disagree that Ontario should open its protected Greenbelt, for example, ‎saying that’s not the problem.

“The listing supply crunch we are experiencing in the GTA has undoubtedly led to the double-digit home price increases we are now experiencing on a sustained basis, both in the low-rise and high-rise market segments,” Jason Mercer, the Toronto real estate group’s director of market analysis, said in unveiling the numbers Friday.

“Until we see a marked increase in the number of homes available for sale, expect very strong annual rates of price growth to continue.”

Certainly, listings are drying up. Active listings have plunged almost 51 per cent from a year ago, and new listings are down 12.5 per cent.

Total sales across the city rose 5.7 per cent in February, to 8,014 units, even including the extra day for Leap Year in 2016.

The average price across all of Toronto rose 27.7 per cent, while the MLS home price index, deemed a better measure, climbed 23.8 per cent.

“We continue to see price growth accelerate (23.8 per cent year over year), with both condos and detached homes running at the fastest pace since the late 1980s,” said BMO’s Mr. Kavcic.

“Supply-demand fundamentals in the GTA are indeed terrific (and have been for a long while), and highly supportive of home price growth, but they certainly don’t justify what has now become a runaway price train. Policy response? See Vancouver.”

And here’s an interesting finding from Mr. Kavcic's colleague, BMO senior economist Sal Guatieri, based on January’s numbers: Prices for detached homes are now more than double those of condos.

“That’s a big issue for young families looking to move up to a detached house and who don’t want to take on a pile of debt, as the only other option is to move out (of the GTA) and face a grueling commute.”

Here’s the Toronto board’s look at the action in detached homes in February:

Bloated

And on that note, if you’re one of the many Canadians who spent the past few years pigging out on debt, here’s a reminder from Royal Bank of Canada’s economics department (not the collection folks):

You have to pay for carrying that debt, and the cost is going to rise.

Canadian households closed out 2016 with outstanding balances topping $2-trillion, having added $99-billion in mortgages and consumer credit through the year, noted RBC economist Laura Cooper.

And because our incomes couldn’t keep up with our borrowing, we now owe $1.67 for every dollar we were bringing in as of the third quarter of 2016.

This has been a huge issue in Canada, whose household debts, as a percentage of the economy, are the steepest among Group of Seven countries.

The pace of mortgage growth is now slowing amid government measures to hose down housing markets, Ms. Cooper noted, though consumer credit is still running at about the same rate.

“With mortgage loans accounting for more than 70 per cent of outstanding debt balances, the slowing is an encouraging development and is helping to dampen overall household debt accumulation,” she said in a new report.

But the low interest rates that have fuelled our nasty habits are going to rise, though slowly.

“The required payments on rising debt loads have remained broadly stable as a share of disposable income in recent years as declining interest rates offset the costs associated with higher debt balances,” Ms. Cooper said.

“Interest rates are expected to rise gradually and still remain at historically low levels, but our estimates indicate debt servicing costs could rise to 16 cents for every $1 of income by 2018 from 14 cents currently,” she added.

“This would represent a record high with two-thirds of the increase attributed to rising interest payments as borrowing rates climb.”

And here’s a little salt for your wounds: “Households could feel an additional squeeze from rising energy costs – which currently sit at a near record low 6 per cent of household spending. This confluence of factors together suggest the contribution of household spending to economic growth will ease, albeit only modestly in the near-term.”

No need to fret too much at this point, Ms. Cooper said, because Canada is still creating jobs and incomes are still rising.

But the pace of growth in consumer spending could nonetheless slip next year to the slowest since the 2008-2009 recession, she forecast.

What to watch for today

Federal Reserve chair Janet Yellen will cap what has been a dramatic week for the U.S. central bank with an afternoon speech in Chicago.

Dramatic because Ms. Yellen’s colleagues have spent the week altering the rate-hike scenario.

Several Fed officials have been out and about, suggesting the next increase to their benchmark rate could come March 15, comments that buoyed markets and pushed up the U.S. dollar, thus helping to push down the loonie.

“The market is looking to Yellen’s speech [Friday] to provide the final push that leaves little doubt the Fed will lift rates again on March 15,” Ms. Cooper’s American colleagues said in a lookahead.

“With the ‘quiet period’ ahead of the [Fed] meeting quickly approaching, this is likely to be the last opportunity to communicate its intentions,” they added.

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