GARRY MARR
The Vancouver Sun
Most of the country’s housing markets heated up in June, according to new data that shows Toronto and Vancouver continue to heavily influence the national average, but aren’t alone in making gains.
While much of the house price acceleration conversation has been about Canada’s two most expensive cities for homes, the Teranet and National Bank of Canada House Price Index released Wednesday, showed strong price growth in nine out of 11 markets — growth being delivered by long-term mortgage rates that are closing in on two per cent.
“That’s the story. Except for Calgary and Edmonton, and we know the economy is struggling there, June was above historical norms,” said Matthieu Arseneau senior economist with National Bank.
Existing home prices across the country rose 2.3 per cent in June from May, aided by Vancouver and Toronto which recorded a 2.6 per cent and 3.3 per cent gains respectively. But other parts of the country are also beginning to show life.
In one month, Victoria was up 4.4 per cent, Halifax saw a 3.7 per cent gain and Ottawa-Gatineau rose 2.6 per cent. Quebec’s housing market is showing signs of price growth, slight as it was: Prices rose 1.7 per cent in Quebec City in June, compared to May, and Montreal was up one per cent during the same period.
“It’s tough to conclude with one month of data and it may be early to call but we are seeing a change,” says Arseneau, who credits the record low interest rates for long-term mortgages with stimulating the rest of the country.
The Bank of Canada did not move on its overnight lending rate Wednesday, effectively leaving floating rates the same, but as long-term bond yields continue to drop around the world so to have mortgage rates. Ratehub.ca says the lowest five-year mortgage is now 2.29 per cent, driven by five-year government of Canada bond yields that are around 0.5 per cent.
Phil Soper, chief executive of Royal LePage, says rates continue to boost housing in many parts of the country, but Toronto and Vancouver have so much more going on to drive their housing markets. The Teranet price index was up 23.4 per cent in Vancouver and 12.4 in Toronto in June compared to a year ago.
“I’d call Vancouver the least healthy housing market in Canada,” Soper said. “There are two main drivers that don’t exist (beyond Vancouver and Toronto). One is the accelerating economy, the employment and immigration. Those are economic conditions for strong consumer confidence. But you also have geographic and regulatory restrictions on supply you don’t have elsewhere.”
Soper is paying very close attention to Quebec.
“If you look at the last couple of releases from us, I’ve called out Quebec as a shining light in our outlook,” he said. “The Greater Montreal numbers aren’t amazing if you compare them to Vancouver, but at 3.5 per cent (LePage’s predicted annual price growth) it’s one of the strongest performances in Quebec in some time.”
Montreal’s relative strength seems to be coming without the benefit of foreign investors, which is said to be a major driver of the housing market in Toronto and even more so in Vancouver. A report from Canada Mortgage and Housing Corp. released Wednesday said those overseas investors are at low levels in Quebec’s largest city.
“The presence of foreign investors in the Montreal real estate market is relatively low and concentrated in the condominium segment, especially in the central areas of Montreal,” said Francis Cortellino, principal market analyst for Quebec urban centres with CMHC.
The Crown corporation says just 1.3 per cent of condominium owners in the Montreal census metropolitan area were foreign owners, though the number was 4.9 per cent in downtown Montreal.
Paul Ashworth, chief North America economist with Capital Economics, says the idea that foreign buyers are driving Toronto and Vancouver housing is “complete nonsense” and the annual gains in those cities are not justified.
“There is also almost no hard evidence that foreign buyers are the cause. The surge in Canadian household debt makes it very clear that this is a domestically generated mania,” he said. “With interest rates at record lows, lenders have been more than willing to extend mortgage amortization periods and to push the loan-to-income ratio on those loans up to unprecedented levels.”
Those rates don’t appear to be heading down anytime soon, according to Alyssa Furtado, chief executive of ratehub.ca. “There hasn’t been much movement on fixed rates, they’ve been low for some time,” she said. “The fact they haven’t moved has fuelled home prices.”
© 2016 National Post
