The Toronto housing market is picking up steam at an “uncomfortable” magnitude, one that resembles the sky-high gains of 2016 which subsequently led to a slew of regulatory measures to tame markets, according to a new report from RBC Economics.
“It’s looking more and more like early-2016 all over again. This is not a good sign,” wrote RBC senior economist Robert Hogue.
According to recent data from the Toronto Real Estate Board, January saw the largest month-over-month price increase since October 2017, with the average selling price increasing by 12.3 per cent year-over-year. New listings, meanwhile, were down 17.1 per cent compared to last year.
“The numbers suggest the sales-to-new listings ratio — a reliable gauge of market tightness — climbs above 0.70 last month, a level that usually sets the stage for even stronger price gains in the near term,” Hogue wrote.
The average sale price for a detached homes was $1,038,247 in January, up 10.5 per cent from a year earlier, according to TREB data. Condo prices increased 15 per cent from a year ago, to $630,047.
According to Hogue, the benchmark price for housing in Toronto could increase at a “double-digit pace” within the next few months, if housing inventory levels remain constant.
“Supply — of existing and new homes — will be key to what happens next in Toronto’s housing market. If it stays low, prices will keep ramping up beyond the next couple of months. Worse, if supply shrinks even further, prices could spiral upward like they did in 2016 and early 2017,” he wrote.
Bank of Canada governor Stephen Poloz recently signalled that the Bank would be “open” to an interest rate cut, given weakening economic data across the country over the past few months. Lower interest rates could further propel the housing market, if borrowing picks up steam.
Already, a number of the Big Five banks have started to lower mortgage rates. On Jan. 29, RBC lowered its five-year fixed mortgage rate from 3.24 per cent to 3.09 per cent, the first time the bank has lowered rates since August 2019. Toronto Dominion Bank cut its posted 5-year fixed rate.
“The last thing the market needs right now is any policy move that would tighten things up even more — be it by restricting supply, or more importantly, by stimulating demand,” warned Hogue, in his report.
Housing prices are also climbing — albeit at a slower rate — in the Greater Vancouver Area, due in part to declining inventories, which industry observers believe will persist for much of 2020.
Meanwhile active listings plunged in both Ottawa and Montreal, setting the stage for price increase in those cities, which are currently not only the “hottest (demand-wise) in the country, but also the tightest,” according to Hogue.
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