Toronto home prices jumped more than 20 percent in February for the sixth straight month as listings dried up, pushing the price of a suburban house beyond C$1 million ($750,000) for the first time.
The average home in Canada’s biggest city, including condominiums, detached and townhouses, climbed 28 percent to C$875,983 last month from the prior year as active listings were cut in half to 5,400, according to a report from the Toronto Real Estate Board released Friday. Sales rose 5.7 percent to 8,014 deals.
Meanwhile in the suburbs, which cover the 905 area code, the average detached home price soared 35 percent to C$1.11 million from last February, the fastest growth of any housing type in the greater Toronto area. Detached home prices in the core of the city continued climbing, up 30 percent to C$1.57 million.
“Nothing is more bubbly right now than the Toronto housing market,” David Rosenberg, chief economist at Gluskin Sheff & Associates Inc., said in a note to clients. Rosenberg was known for calling the U.S. housing bubble before it popped, kicking off the 2008 financial crisis.
Toronto home prices continued on their hot pace despite efforts to tamp down on the heat. Last year, the federal government implemented several housing regulations, including raising the stress testing of loans for even the safest borrowers, limiting mortgage insurance for banks, and closing a tax loophole for foreign purchasers. Experts have blamed foreign investors, a supply crunch, and outdated zoning regulations preventing increased density in some parts of the city.
The average home price in the city is equivalent to about 10 years’ worth of median family income versus 7-1/2 years a year agoand are more than 60 percent overvalued on a price-to-income basis, Toronto-based Rosenberg noted. And while the Bank of Canada is unlikely to be raising interest rates soon, the risk is the country imports interest rate increases from the U.S.
“The amount of leverage is so huge and so unprecedented that it would not likely take much in the way of an increase in mortgage rates to cause the price momentum in real estate, especially in Toronto, to go into reverse,” he said.
Even the Toronto Real Estate Board said the market is overheating.
“Over the past year, we have reached a point where government policies that target only the demand side of the market, whether we’re talking about foreign buyers or further changes to mortgage lending guidelines, will not be enough to balance market conditions and moderate the pace of price growth,” Jason Mercer, director of market analysis for the board, said in its statement.