Canada's soaring home prices now a 'small town issue': RBC economist
TORONTO -- Despite some predictions that the pandemic might cause Canadian real estate prices to pull back, the housing market continues to heat up, with activity spreading beyond the urban markets where it’s been strongest, says one economist.
The Canadian housing market has seen prices gain steadily for more than a decade now, particularly in major cities such as Toronto and Vancouver. But the extreme price and activity growth in those markets is now increasingly showing up in smaller communities, Robert Hogue, a senior economist at Royal Bank of Canada, said on CTV’s Your Morning on Wednesday.
“Typically housing markets are really kind of working in isolation relative to other parts of the country, this time it’s all synchronized, very hot everywhere,” he said.
Canada Mortgage and Housing Corporation predicted last May that housing prices would fall by nine to 18 per cent from their pre-COVID levels by the end of 2020. Instead prices rose by 13 per cent during the year, according to the Canadian Real Estate Association (CREA).
While Toronto and Vancouver continue to be hot, other markets once thought affordable are also seeing increased activity and price gains. The Nova Scotia Association of Realtors, for example, said the number of houses sold in February rose 31.9 per cent from February 2020, while average prices rose by 30.4 per cent. According to CREA, about 85 per cent of local markets in February were seller’s markets, meaning sales were above long-term norms compared to new listings.
While a hot housing market can be a boon for a local economy, it also can also lead to people being priced out of the housing market, said Hogue.
“It puts a lot of pressure on affordability locally and that I think it is going to be quite a challenge going forward,” he said. “This is no longer just a big city kind of Toronto, Vancouver story, this is a small town issue now.”
He said a potential catalyst to cool the market could be interest rates rising from their current rock-bottom levels, or possibly government measures aimed at reducing activity.
“It's not entirely clear what they can do but certainly there's pressure there,” said Hogue.