Bank of Canada Says Toronto Housing Boom Likely Unsustainable

Toronto homebuyers should not expect the frantic pace and blistering prices of the housing market to continue, warns the head of the Bank of Canada.

“Prospective homebuyers and their lenders should not extrapolate recent real estate performance into the future when contemplating a transaction,” Stephen Poloz said Thursday with the release of the bank’s semi-annual financial system review.

It was a caution to consumers not to get caught up in the frenzied market conditions that see many GTA homebuyers bidding tens, sometimes hundreds of thousands of dollars, over list prices as demand continues to outstrip the supply of housing, particularly detached and semi-detached homes.

Poloz’s authority adds to a growing chorus of concern from banks and housing experts about the sustainability of the country’s two hottest housing markets in Toronto and Vancouver.

The caution came a day after Finance Minister Bill Morneau said Ottawa was conducting an in-depth examination of the country’s real estate markets to determine whether further safeguards are needed to ensure Canadians can still afford housing in the event of an interest rate rise or other economic changes.

There’s a growing risk of a sharp correction in Vancouver and Toronto, while many households are facing other financial stresses, including climbing debt, said the central bank’s report.

The document said Vancouver house prices in May were 30 per cent higher than a year ago. In Toronto, May prices were 15 per cent higher than a year ago.

Some of that is due to foreign real estate buyers who see Canadian real estate is as a relatively safe investment.

Morneau didn’t specify the kinds of measures the government might consider to cool down over-heated markets like Toronto and he didn’t say when Ottawa might act. But he promised a “deep dive” into those areas to determine whether steps such as more changes to the mortgage and amortization rules are warranted.

That’s the right approach, according to the Canadian Real Estate Association.

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