Current Real Estate Market in Canada
The Organization for Economic Co-operation and Development (OECD) prepared a world-wide report recently, according to which Canada, joined by Norway and New Zealand, has one of the most overvalued real estate markets globally.
The report says, “Economies in this category are most vulnerable to the risk of a price correction – especially if borrowing costs were to rise or income growth were to slow”. The report, which takes into account the feasibility of home ownership (price-to-rent ratio) and affordability (price-to-income ratio), comes amidst speculations that the Canadian real estate market is moving towards a downturn.
If the two ratios, price to rent and price to income, exceed long-term averages, the real estate market is said to be overvalued. When it comes to Canada, the country is only behind Norway when it comes to price-to-rent ratio and ranks third in price-to-income ratio, where Belgium and France take lead. According to the report, the most undervalued real estate markets are of Germany and Japan.
Toronto, which is the largest City in Canada, saw house sales drop by 3.4 percent last month, but prices did not drop, with the average last month amounting to $542,174 – an increase of 5.4% from the previous year.
“The sales picture in the GTA has improved markedly over the past two months,” said Ann Hannah, President of the Toronto Real Estate Board. “While the number of transactions in April and May remained below last year’s levels, the rate of decline has been much smaller.”
Vancouver, the most expensive real estate market, saw a 1% growth in sales compared to the previous year. Moreover, the Real Estate Board of Greater Vancouver (REBGV) reported a 10% increase during May, from sales in April. The Board’s president reported that the number of sale listings corresponded closely with the number of properties sold, which balanced the market.
While average house prices in Vancouver recovered from January this year by 1.8% to reach $598,400, but that is still a 4.3% decline from last year. According to economists, the Canadian real estate market is undergoing a ‘soft landing’, where the downturn is not as severe as predicted last year. However, senior economist with BMO Capital Markets, Sal Guatieri recently stated that any changes in income or interest rates could affect the market negatively
“High-priced Vancouver and Toronto … remain vulnerable to a material correction in the event of a shock to income or interest rates,” stated Guatieri.
Many economists have been comparing the recent slump in home building to the initial stages of the US market’s downfall and have been declaring the ‘soft landing’ notion to be a premature one.
