Canadian Housing – Undoing Crazy Years

Length 3:06

Benjamin Tal, Deputy Chief Economist, CIBC World Markets

"When people talk about the risk associated with the real estate market in Canada, they don't have St. John's Newfoundland in mind. They have Toronto and Vancouver. Really that's what counts as far as the trajectory of the real estate market. So we have a situation in which the best view of the Toronto Real Estate horizon is actually from the Vancouver harbor. What I mean by that is that Toronto is lagging Vancouver by about 14 months. Vancouver is now slowing down because of higher interest rates and because of B-20, the changes to regulations. Toronto is slowing as well. The issue is that Vancouver is slowing much more quickly and that's the number one reason why we believe that will continue. The issue with Vancouver is more severe - affordability is more stretched. Population growth is not as robust and we see much larger inventories over there. So we see Vancouver actually continuing to slow down. ”

Toronto – Two housing markets

“Toronto is a very interesting market because it's a tale of two markets. It's a tale of the low rise and high rise: the condo market and the detached houses. Now over there, what we are seeing is a situation in which the price of new houses has risen dramatically over the past year. Dramatically; much faster than the resale market. And now this gap is starting to go down, shrinking, and we see prices in the new segment of the market going down dramatically almost in a freefall and that will continue until we find some sort of equilibrium. The condo space is different because the new market is still rising. It is at a record high relative to the resale market and I believe that will start slowing down as well because investors are not investing. 50 percent of the condo space in Toronto, those are investors, and many of them are starting to question that investment because interest rates are rising and because of B-20, the changes to regulations. So this market also will slow down.”

Toronto & Vancouver - returning to “normal”

“So we see some softening in the high rise segment of the market in Toronto and in Vancouver over the next year. I think it would be a very healthy situation because we have to remember what we are doing now is not a free fall. It's not a crash. It's basically undoing crazy years. 2016 in Toronto was a crazy year where the trajectory went like a hockey stick and now we're just fixing it. We're going back to normal, and this normal, we can explain based on demographics, interest rates and many other things. The forecast that the Bank of Canada will not be raising interest rates like there is no tomorrow will help the housing market to stabilize and find an equilibrium. So within a year I believe that this market will find an equilibrium in terms of price. As far as the overall activity in the market, that will slow down and that will be a very, very good signal because it will allow this market to continue to grow over the next decade.”