Limited housing supply in Vancouver and Toronto will help buy house price inflation: report

Financialpost.com
Jan. 4, 2017
By Barbara Shecter

Limited housing supply in the key Canadian markets of Vancouver and Toronto will help maintain national house price inflation this year, even as recent government and regulatory curbs kick in to slow the growth rate, according to Oxford Economics.

The global advisory firm, based in Oxford, England, predicts that national house price inflation will slow to around six per cent in 2017 from 10 per cent last year.

“Our forecast is based on a gradual deceleration in speculative and foreign buying activity alongside continued support to prices from non-speculative demand and ongoing supply constraints,” the economic forecaster said in a report published this week.

The greater Toronto and Vancouver markets have been key drivers of Canada’s multi-year property boom, according to Oxford Economics. And despite the expected slowdown, the attraction of those cities as places to live and work, combined with limited residential real estate supply in those areas, “will support still healthy growth rates.”

The report says several measures indicate that foreign buyers and speculative demand were behind the 50 per cent surge in house prices in the greater Vancouver area and 35 per cent rise in greater Toronto since 2014.

For example, the unit sales to population ratio in the Vancouver area fell to a two-and-a-half year low after a 15 per cent tax was levied on foreign buyers in August. In Toronto, where there is no equivalent tax, the ratio remains well above its long-term average.

Oxford Economics predicts that the forces now at play in Canada’s real estate market will result in curbed sales to foreign buyers and reduced expectation of future home price gains, which will temper speculative demand.

“Other factors that will dampen demand include higher mortgage rates, high household indebtedness and more restrictive bank lending,” the report said.