The Teranet-National Bank Composite House Price Index released Monday says Canadian home prices rose 2% in July 2017 over June, and 14.2% over last year.
The monthly increase in Toronto was 2.1%, although the report claims there are signs of weakness in the market, with non-condo homes down 1.6%. The National Bank of Canada’s chief economist, Stefane Marion, told BNN they are forecasting a drop of 7% to 10% for GTA home prices over the next few months as a result of both the recent legislative changes and higher mortgage rates.
Similar legislative changes in Vancouver last summer haven’t cooled the market for long, with prices up 2.8% in July. Prices on existing homes in what remains Canada’s priciest market were up 11% in the five months leading up to July according to Vancouver’s real estate board.
The number of homes sold last month fell 21% compared to a year ago, but according to criteria that include income levels, employment and population growth, there is evidence of overvaluation — neither population nor employment are growing at levels you’d expect to see with such prices, according to CMHC analyst for Hamilton Anthony Passarelli in The Spectator.
It’s the city’s proximity to Toronto that causes its prices to go up disproportionately with local income. He also said that the ratio of full-time to part-time jobs in the city hasn’t increased much, which puts upward pressure on wages.
The CMHC’s assessment of the Canadian market cited “strong evidence of problematic conditions,” such as a decrease in disposable income and slow growth in the young adult population. Passarelli noted that problematic conditions aren’t necessarily dire, but could mean, for example, a period where house prices slow down while incomes catch up.
Toronto’s housing supply issue
Based on the latest data from the 2016 census, Bloomberg says supply may not be the problem in the housing market we think it is. The number of households in Toronto went up by 146,200 between 2011 and 2016 to 2.14 million, compared to 175,825 new homes built — which means homes built exceeded real demand by nearly 30,000.
However, that doesn’t mean supply exceeded demand in every segment; we still suffer a dearth of single detached homes for those who would (and can afford to) have them. Single detached homes made up nearly 30% of new builds in the last five years, down 40% from the decade prior. Census data also showed that the city has surpassed 1,000 people per square kilometer.
If supply continues to be an issue in the GTA’s new home market, we wouldn’t be surprised if prices continue to rise, especially through the busy fall. The resale housing market is a different matter; we may see the 10% drop in home prices.