CIBC's Tal: Red-hot activity posing significant long-term risks to housing

CIBC's Tal: Red-hot activity posing significant long-term risks to housing

CIBC

Is the currently overheated activity in major markets undercutting the housing segment’s future prospects? Benjamin Tal of CIBC Capital Markets Inc. seems to think so.

Tal noted that this alarming trend is especially apparent in Toronto, where low interest rates have pushed property investors towards the condo market despite the spectre of considerable losses in the near term.

“It’s really about the supply-demand mismatch and people are looking at interest rates, they know … interest rates will rise,” Tal said in an interview with BNN Bloomberg. “So basically, they’re stealing activity from the future in order to be part of this low interest rate environment and take advantage of it.”

The market’s condo sales activity increased by 85.5% annually in January, according to the Toronto Regional Real Estate Board. A major driver of this is the fact that the asset class represents “a more affordable entry” into the market compared to single-detached units.

Tal cited recent CIBC research that found investors were being forced to absorb losses to the tune of hundreds of dollars monthly, and yet choosing to keep their hold on the properties due to expected longer-term value.

Such is a recipe for significant price growth, Tal cautioned.

“If you think that Toronto is unaffordable now, you wait,” Tal said. “Toronto is becoming like Berlin, like London, like Manhattan. It’s becoming more and more unaffordable, and therefore we know that our kids will struggle.”