The government may step in to cool off Toronto’s red-hot housing market, the Royal Bank
of Canada (RBC) said. Home resales there set a new record high in 2016. In its Canadian Housing Health Check for 2017, RBC said the likelihood to address housing risks in Toronto “is increasing.”
“Toronto is showing increasing signs of overheating,” the bank said. It pointed out that affordability-related vulnerabilities continue to be major concerns in Vancouver and Toronto. Such vulnerabilities are now being tempered (somewhat) in Vancouver, however, by rapidly moderating price increases, it added. RBC did not specify what sort of moves policymakers would introduce to cool down the Toronto’s market.
The Toronto-area market would be more sensitive to a substantial rise in interest rates than most markets in Canada due to its high prices. “Affordability in the GTA [Greater Toronto Area] has been on a deteriorating trend since 2012 with the pace of deterioration accelerating since 2015,” RBC said.
The GTA consists of Toronto and the four regions that surround it: Durham, Halton, Peel, and York. The area generates some 20% of Canada’s GDP and is home to 40% of the country’s business headquarters, said public-private partnership group Greater Toronto Marketing Alliance.
The bank described GTA as a seller’s market, as demand-supply conditions “remain very tight.” The area’s affordability challenges could exacerbate further, as current conditions point toward “further acceleration” in price gains in the coming months.
The lack of available land is seen as a key factor contributing to Toronto’s rapidly rising house prices, PricewaterhouseCoopers said in its 2017 Emerging Trends in Real Estate report for Canada. “With no real factors reducing demand, developers and builders will continue face supply-side issues.”
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