Royal LePage has adjusted its Toronto area housing forecast upward, from 5.75 per cent price growth this year to 11 per cent by the final quarter.
By Tess Kalinowski Real Estate Reporter
Greater Toronto Area median home prices rose 13.1 per cent in the first quarter of the year, the real estate company said on Tuesday. But that growth is expected to slow as the year goes on.
“We’re a year away from a cooling of the market. Then we’ll be in a period of extended normalcy,” said CEO Phil Soper.
Royal LePage’s new forecast comes amid speculation about whether the federal Liberal government will include measures in Monday’s budget to calm the blazing-hot real estate market.
Soper is among those who believe that government interventions are likely to be ineffective and that buyers’ financial limitations will likely be what quells the rush to buy.
A shortage of homes to buy will continue to push prices north of what some consumers can afford, he said. A few others will be forced to wait and save more money, if Canada’s bank regulator toughens lending rules again — something the Office of the Superintendent of Financial Institutions said last week it is considering.
“I think that’s what will bring this expansionary period to a halt. It will be some kind of government intervention or eroding affordability,” said Soper.
When governments introduced new taxes and OSFI rolled out the mortgage stress test amid the frothy market of 2016 and 2017, it served to make housing more expensive and simply punted demand down the road, he said.
The answer to home prices is to inject more supply into the system by streamlining development, said Soper — but he added that’s a longer-term solution.
The Liberal government’s focus has been on building more affordable housing, something the country badly needs, he said. “But if that continues to be the focus it certainly won’t help the vast majority of prospective Canadian homeowners.”
In another sign that supply is seen as a root cause of Canada’s housing affordability challenge, on Monday Scotiabank committed $10 billion over 10 years to help Canada Mortgage and Housing Corp. deliver on its commitment to provide a suitable, affordable home for every Canadian by 2030.
“It speaks to a broader concern of ours, which is a lack of housing in the country — period — and obviously in the affordable space as well and, that’s going to get worse as prices continue to rise,” said the bank’s senior vice-president and chief economist Jean-François Perrault.
University of Toronto political science professor Nelson Wiseman said he doesn’t expect the upcoming federal budget to address accelerating home prices.
“The kinds of controls that could be put into place have generally come from regulators so I’m not sure the government will address this in terms of specific guardrails,” he said.
Although he thinks a capital-gains tax on primary residences might be fair, Wiseman said it’s unlikely the Liberals will introduce such a measure with a possible election pending. The tax formula would take time to build and the backlash from the public would be significant.
“Housing is a concern but it’s not in the government’s interest in the budget to raise an alarm bell about it,” he said.
Ottawa is under a lot of pressure to respond to rising prices but without increasing supply the government has limited tools, said Re/MAX Integra chief strategy officer Christopher Alexander.
The current price acceleration isn’t a result of speculation, so taxing house-flippers or second homes isn’t going to have much impact, he said. Instead, Alexander said, the market is being driven by low interest rates, FOMO — fear of missing out — and a pandemic that has pushed people to reassess their living situations.
“The economy is fragile and real estate has been a shining star of it. We’re in a lockdown so there’s a lot of people that probably would have listed (their homes on the market) this year and last year and are putting off their plans because of the situation,” said Alexander.
“To me that’s the biggest reason government should wait,” he said — when interest rates creep up, the market will correct itself.
This report by Tess Kalinowski at The Star . All credits belongs to The Canadian Press. In no way it belongs or is by Jeemca Group Inc.