Home prices predicted to go up, up, up in Toronto, Vancouver

High confidence, low inventory see spring market ‘significantly stronger’ than expected, ReMax says

With the spring market now in full swing, it seems everyone is weighing in on the state of the housing market and wondering how much higher Vancouver and Toronto prices can go.

On Friday, one of the country’s biggest real estate companies, ReMax, took the unusual step of revising its projections for Canadian house prices upward, citing high consumer confidence and low inventory in the country’s two hottest markets.

Just four months ago, ReMax had projected Toronto house prices would likely increase by 4 per cent through 2015. Now it’s revised that to 7 per cent. As well, it had anticipated price gains of 3 per cent in the Vancouver market by year end. Now it expects 6 per cent.

The gains in those two markets alone are expected to help push the national average up by 3 per cent, about 0.5 of a percentage more than projected at the end of 2014, according to ReMax’s Spring Market Trends Report.

“This spring market has come out of the gates significantly stronger than even we had anticipated,” says Gurinder Sandhu, executive vice-president of ReMax for the Ontario-Atlantic region.

“Our realtors and brokers are reporting to us that they haven’t seen buyers this confident in the Canadian real estate market and the Canadian economy in years.”

This week, the Bank of Canada said it still considers a soft landing in the national market — a slowing or slight decline in prices that would allow incomes to start catching up — “the most likely scenario.”

But it did warn that “the adverse impact of the oil price shock in Alberta and continued robust price growth in Toronto and Vancouver suggest a risk of a correction in these markets.”

The average house price was up 10 per cent in the GTA in March, year over year, to an average of $613,933. Prices were up

“The first-time buyer is disappearing because there is a huge affordability problem in Toronto and Vancouver.” DAVID MADANI CAPITAL ECONOMICS

11 per cent in Metro Vancouver, to an average of $893,335 during the same period.

“Toronto and Vancouver have basically gone into a world of their own and separated from the (national) pack,” said BMO chief economist Douglas Porter in an interview. “I would say that the hotter they get, the more there is the risk of a correction, and maybe a meaningful correction, down the road.

“But there’s nothing to suggest there is a trigger right around the corner to lead to a correction.”

In fact, the lack of listings and low interest rates are likely to keep the momentum in those two major markets going for a while, said Benjamin Tal, deputy- chief economist at CIBC World Markets.

“I think that, soon, people will start revising their 2016 forecasts upward.”

David Madani of Capital Economics is concerned, however, that there is a giant misperception about the strength of the Vancouver and Toronto markets, driven largely by the fact that real estate boards use average prices, rather than median, which disguise the fact that it’s not so much prices are rising as it is sales of higher-end homes.

“We’re seeing that across the country,” Madani said, pointing to studies that have shown the luxury market continues to thrive in major Canadian cities and that the renovation boom has boosted house values, both of which skew averages for sale prices upward.

“The first-time buyer is disappearing because there is a huge affordability problem in Toronto and Vancouver,” said Madani in an interview. “The market isn’t healthy when first-time buyers can’t afford to buy.”