The governor of the Bank of Canada suggests it won’t be long before the country’s housing market has bounced back and starts growing once again.
“As markets stabilize in Toronto and Vancouver, the Canadian housing sector should return to growth overall later this year,” Stephen Poloz, governor of the Bank of Canada, said in a speech to the Canadian Credit Union Association and Winnipeg Chamber of Commerce on Monday.
Poloz notes that, on a national level, housing is propped up by fundamentals — such as an increasing population and a healthy, strong labour market — at a time of cheap credit, by historical standards.
Lower oil prices have taken the wind out of the sails in markets in Alberta and Saskatchewan. But many others have shown positive signs, with Poloz noting resale activity in Halifax, Moncton, Montreal, Ottawa and, recently, Winnipeg.
What has played out in Toronto and Vancouver doesn’t reflect weak fundamentals. Instead, it’s the fallout from policy moves that arrived at a time when real estate was overheating.
“When house prices are rising rapidly, people tend to extrapolate that experience and buy houses early to avoid further price increases, or to profit from them if they are speculators,” Poloz explains. “In other words, markets become frothy.”
But when homebuyers’ price expectations adjust in hot markets, demand can evaporate quickly, which is exactly what happened in Toronto and Vancouver.
“The trigger could be anything, including new taxes on foreign buyers, stricter mortgage guidelines, rising interest rates, or simply that rising prices create an affordability roadblock for more and more people,” he explains.
Now, 16 months after federal policymakers expanded stress testing to cover uninsured mortgages, there are signs that some markets are shaking off the effects.
In a note sent to clients this week, BMO Senior Economist Robert Kavcic suggests Toronto real estate has finally found bottom.
On a seasonally-adjusted basis, Toronto area home sales climbed 11 percent. “That would leave activity at the highest level since the start of 2018 when accounting for seasonality,” writes Kavcic.
Some of that increase is the result of pent-up demand from the rough winter months, when a spell of bad weather likely sidelined homebuyers, Kavcic notes.
“But, the market is also stabilizing as we fully expected. Interest rates are backing off have helped (both affordability and psychology), while broader supply-demand dynamics in the GTA remain very supportive,” Kavcic says.