Toronto house prices predicted for huge surge

Toronto house prices predicted for huge surge | Insurance Business Canada

Toronto house prices predicted for huge surge
It’s a common mistake by policyholders to assume that the value of their property is the price the home itself cost, rather than its rebuild value. Finding an appropriate rebuild value can help insureds avoid over- or under-insurance – something they may be particularly prone to currently as Toronto’s house prices look set for another year of change.

Toronto’s housing market is likely to stay strong for the rest of the year, with home prices jumping as much as 25%, amid hints that speculators are fueling demand and posing a potential risk to the economy, TD Economics Chief Economist Beata Caranci said.

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A “strong Toronto home-price forecast is not a vote of confidence in market fundamentals,” Caranci wrote Monday in a note to clients. “It’s getting harder to ignore warning signs that market demand pressures are increasingly reflecting speculative forces.”

Residential prices in Canada’s largest metropolitan region are forecast to grow 20 to 25% this year, up from a previous estimate of 10 to 15%, according to the report by TD Economics, part of Toronto-Dominion Bank. Toronto-area prices have climbed 19% in the past 12 months, the fastest clip since the 1980s, when a frenzied housing market resulted in year-over-year increases of 55%, Caranci said.

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“Evidence is building that speculative forces are growing deeper roots, which raises the risk that prices will move closer to the top end of that forecast in the absence of policy measures,” Caranci wrote.

As for next year, higher mortgage rates and fewer affordable properties will likely cut the growth rate to 3 to 5%, though a lack of clarity on housing speculation makes predictions difficult, Caranci said. A housing market driven by speculators seeking a quick profit boosts the risk of rapidly unwinding price gains at the same time homebuyers are contending with larger debt burdens, she said.

Hard Landing

“The risk is that if you were to have any interruption in income or a downturn in the economy, your landing in the housing market is harder,” Caranci said in an interview.

A possible foreign buyer’s tax, which has been the focus of policy debate on how to cool the market, has been effective in other cities worldwide in the short-term, but also can trigger unintended consequences, Caranci wrote. A tax imposed in Vancouver last year pushed foreign investment into other areas, including Toronto. And a tax focused solely on foreign investors wouldn’t discourage speculators from Canada, she said.

Bank of Montreal Chief Economist Doug Porter said last week that Toronto is clearly in the midst of a housing “bubble.” Caranci called the bubble debate a distraction because it’s usually not clear what’s happening in an economy until the cycle ends.

“What we can say is that when comparing this housing cycle to previous ones that lack a happy ending, Toronto appears to be moving in that direction,” she said.

Copyright Bloomberg 2017

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