The growth that markets like Toronto and Vancouver are experiencing is – by most accounts – unsustainable, but should brokers and others in the real estate sector be preparing for a crash?
“It’s a fair question, and ‘No’ is the answer I’d give you,” says Phil Soper, president and CEO of Royal LePage and Brookfield Real Estate. “The likelihood of an increase in interest rates of anything other than a very minor nature, call it a quarter of a point or something, is very low right now.”
Soper says the only thing that could realistically cause problems for the markets in Canada’s largest cities is a steep interest rate hike. Last year, a rate hike seemed likely as the closely tied American economy continued its rapid expansion, adding some three million jobs in 2014.
However, brokers can expect interest rates to remain where they are, Dr. Sherry Cooper, chief economist of Dominion Lending Centres
Certainly, the U.S. would have to act first before we saw real rate movement here, suggests Soper.
“Even though we have independent monetary policy between Canada and the United States, there is a strong correlation between interest rates policy between the two countries, and if their interest rates started to rise, I am convinced ours would have to, too,” he says. “But, and here’s the good news in this, in the first quarter of 2015, the pace of expansion in the U.S. slowed down considerably.”
That slowdown, Soper says, took the threat of inflation off the table. The Bank of Canada went on to lower rates even further earlier this year – dropping the benchmark to three-quarters of a per cent. Earlier this month, the central bank decided to hold its overnight rate there, citing the “front-loaded” impact of lower oil values and an economy that “stalled” in the first quarter of 2015. It did say, however, the economy is recovering as it had expected.
“So with interest rates low, I don’t see a correction in Vancouver and Toronto,” Soper says. “I just don’t see it in the cards.”