The average price of a home in Canada hit another all-time high in October, rising 7.1 percent over the past year to just short of $420,000. However, economists at Canada’s major banks continue to warn that current house price trends can’t continue.
Driven by the markets in Vancouver, Calgary and Toronto, October saw home sales rise seven percent from a year ago, making the average house price $419,699. The increase came as sales last month climbed 0.7 percent nationally compared to September, when sales dipped
“Low interest rates continued to support sales in some of Canada’s more active and expensive urban housing markets and factored into the monthly increase for national sales,” said Beth Crosbie, president of Canadian Real Estate Association.
Bank of Montreal senior economist Robert Kavcic warned that the national totals masked “widely divergent regional trends,” and expressed that housing market strength really comes down to Vancouver, Calgary and Toronto.
“It’s still a three-city show in Canada’s housing market. While price momentum in Calgary might finally be slowing, Vancouver and Toronto continue to strengthen,” he said. Kavcic suggested the recent decline in oil prices could mean the party is over, at least for now, in Calgary.
Still, the strength of Canada’s housing market has surprised even the optimists, many of whom have for years been calling for house price growth to slow down as debt levels hit record highs. So far, the slowdown has been limited to a few markets, mainly in central and eastern Canada.
“It’s difficult to see prices staying at current lofty levels if interest rates don’t stay at current crisis levels,” BMO said in a report last week. It expects interest rates to start rising next year.
TD economist Diana Petramala noted that there has been an effective 0.45 percentage point decrease in mortgage rates this year, which supported the housing market, but that will reverse next year.
“Affordability is likely to deteriorate as home prices are still growing at a faster pace than incomes,” she said. “We continue to believe a moderation in housing activity is in the cards for the Canadian economy, but it likely won’t happen until interest rates start edging higher at the end of next year.”
CREA noted sales in Vancouver, the Fraser Valley, Victoria, Calgary and Toronto combined to account for almost 40 percent of the sales nationally, and nearly 60 percent of the year-over-year increase.
The number of newly listed homes rose 0.8 percent in October compared to September, while the sales-to-new listings ratio was 55.7 percent in October, suggesting a balanced housing market.