Housing prices will keep growing in Canada as buyers hurry before rate increases

Canadian real estate prices are expected to go up again in the nearest future, as first-time buyers and investors hurry before future rate increases. They ignore the central bank’s warning about a strong risk of a sharp prices decline.

The Bank of Canada Deputy Governor Paul Beaudry recommends potential home buyers to consider whether it’s a good time to make a purchase, noting that some markets are red-hot and investors show higher activity.

Such market conditions may lead to a higher chance of a prices correction, he says.

In September, the BoC signalled that its key lending rate (currently at 0.25%) may start going up in the “middle quarters” of the next year. Analysts expect one more wave of buyers in a hurry soon.

“Every time interest rates start growing, people rush into the market, including investors. That’s why we’ll see higher activity during the next few months,” – noted Benjamin Tal, deputy chief economist at CIBC Capital Markets.

In March, Canadian real estate prices showed an annual rise by 31.6%, reaching a record high level. Then, they slowed down slightly in summer, but now we can see them going back to increases, with an average price in October almost reaching March’s numbers.

Of course, ratings agencies notice these trends. According to Fitch, Toronto’s housing market is overvalued by 32%, while Vancouver is overvalued by 23%. Moody’s Analytics provided the following overvaluation rates: Vancouver – at 23%, Toronto – at 40%, and Hamilton – at 73%.

Although Prime Minister Justin Trudeau has promised to take measures aimed at cooling down the housing market, critics say national home prices rose by 77% since he took office in 2015.

“We don’t believe there will be a market crash. However, we expect almost no changes in prices in 2022”, – said Jimmy Jean, chief economist at Desjardins Group in Montreal, noting that demand will probably be still quite decent, supported by immigration.

According to Doug Porter, chief economist at BMO Capital Markets, we’ll see a short-term hurry before rate gains, and then only a modest slowdown in case of previously supercharged markets.

“During the previous 15 years, we’ve heard many warnings about a possible market crash, and none of them came true,” – Porter said.


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