Home price correction risk elevated in trend-setting markets - poll

Intensified demand and record-low borrowing costs are expected to continue driving home price growth nationally, according to a Reuters survey

Home price correction risk elevated in trend-setting markets - poll

Canada’s most expensive housing markets are facing a significant risk of sharp price correction, according to the results of a new Reuters poll released last week.

Toronto prices are now expected to rise by 9.5 per cent, rather than the 6.0 per cent increase predicted in the last edition of the poll back in December. 11 out of 19 economists agreed that a correction in the city was somewhat or very likely.

“We were expecting Toronto’s market to cool down in response to the new federal home financing rules but so far there's little evidence of that playing out,” BMO Capital Markets senior economist Sal Guatieri said.

On the other hand, Vancouver is set to experience a 2.0 per cent increase, way up from the previous prediction of a 1.8 per cent decline. 15 of the economists polled said that a correction in Vancouver is somewhat or very likely, while 3 said that it was not likely.

Higher demand and rock-bottom borrowing costs will also continue fuelling home price growth across Canada—in turn increasing pressure upon policy makers to take steps in addressing what many observers fear to be a bubble, the poll report added.

National home prices have been forecast to grow by a median 4.7 per cent in 2017, far above the 1.8 per cent in the previous poll. Meanwhile, prices are projected to increase by 3.5 per cent in 2018, up from the previously expected 2.0 percent, and 2.8 percent in 2019.

“There’s no doubt interest rates are feeding cheap credit to homebuyers. But there’s also an element of increased investment in the market, both domestic and foreign,” Guatieri explained.

Related stories:
Builders’ and agents’ suggestions on improving access to home ownership in GTA
Metro Vancouver housing starts not enough to improve affordability - report