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There’s more than ‘foreign buyer bogeymen’ driving up Vancouver, Toronto home prices: BMO Add to ...

Behind the price surge

Bank of Montreal has jumped into the debate over house prices, saying there’s much more at play in Canada’s two hottest markets than just foreign buyers.

“It’s easy to blame the foreign buyer bogeymen for the home price gains in Vancouver and Toronto,” BMO Nesbitt Burns senior economist Robert Kavcic said in a research note that examined other factors feeding the markets.

“Sure, all anecdotes suggest they are playing a role in some neighbourhoods – we just don’t know exactly how big that role is,” he added.

“What we do know is that the fundamentals right here at home are strong enough on their own to drive big price gains.”

Home prices in Vancouver and Toronto have been on a tear, and the issue of foreign buyers is particularly heated in British Columbia.

So much so, The Globe and Mail’s Justine Hunter reports, that the provincial government will demand to know the citizenship of home buyers. There are also tax changes aimed at cooling segments of the market.

Mr. Kavcic cited three reasons why “it’s not just foreign buyers” fanning the flames in Vancouver and Toronto.

First, to twist the old phrase about real estate, it’s at least partly because of population, population, population.

As his chart shows, Mr. Kavcic cited the rise in the number of people deemed key first-time or move-up home buyers.

“At the same time, these two cities have accounted for 75 per cent of Canada’s net job growth over the past two years,” he added.

Indeed, according to the latest numbers from Statistics Canada, employment in Vancouver has climbed by 4.5 per cent in the past year, and in Toronto by almost 5 per cent.

Added to that is the age-old supply-and-demand question.

“Vancouver’s geography is well documented, but in Toronto, development restrictions contributed to 2015 seeing the lowest annual number of detached home completions in 37 years (and that’s not a population-adjusted number),” Mr. Kavcic said.

While Mr. Kavcic was referring to new homes, there’s a supply issue in the market for existing homes, as well.

Active listings in Toronto, for example, fell about 14 per cent in January from a year earlier, while new listings dropped 6.2 per cent.

Then there’s Vancouver, where listings plunged by almost 39 per cent in the same period, with new listings also down 6.2 per cent.

And, finally, financing is dirt cheap.

“Demand is robust, supply is constrained, and those two forces are butting up against each other in a record-low interest rate environment,” Mr. Kavcic said.

“A five-year mortgage is barely above the expected long-run inflation rate. The longer this lasts, the hotter these markets will burn.”

Scenes I'd love to see ...

“Forgive me, Father. I forgot who ‘thine’ referred to.”

“Forgive me, Father. George W. is my brother.”

“I was born in Canada.”


Photo illustrations

Inflation climbs

It seems we’re buying less and paying more, particularly for food.

Annual inflation in Canada climbed in January to 2 per cent from December’s 1.6 per cent as food prices rose 4 per cent.

And note this: Costs for fresh vegetables, a concern in Canada as import prices rise as the loonie sinks, surged 18.2 per cent.

There’s another measure, too, according to Statistics Canada today, that takes in cauliflower, broccoli, celery and peppers, which soared almost 23 per cent.

At the same time, Statistics Canada also reported today that shoppers pulled back in December, with retail sales slumping 2.2 per cent amid broad-based declines.

“Later snowfalls and unseasonably warm weather in many parts of Canada may have contributed to lower seasonal purchases.”

Toonie turns 20

Canada’s two-dollar coin is 20 years old today. (And it’s worth just $1.45 U.S.)

The bi-metallic piece is known as the toonie, a takeoff on the loonie, the country’s one-dollar coin.

Almost 885 million toonies have been circulated since early 1996, the Royal Canadian Mint said.

Chart of the day

Canadian businesses are an unhappy lot.

The Conference Board of Canada’s index of business confidence tumbled 1.5 points to 86.6 in the fourth quarter of last year. That, the group said, was nothing compared to the drop to 88.1 in the third quarter from the previous measure of 105.6.

“Optimism about the state of the Canadian economy is at the lowest level since the 2008 recession, having deteriorated substantially over the last several quarters,” The Conference Board noted.

Attractive men beware: Your looks could cost you

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