Rising Canadian home prices make new regulations more likely

Fri Feb 24, 2017 5:41am EST
 
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By Leah Schnurr and Anu Bararia

OTTAWA/BENGALURU (Reuters) - Low borrowing costs and hot demand in key urban centers will keep pushing Canadian house prices higher this year, a Reuters poll showed, pressuring policymakers to take further steps to rein in a market that more experts are calling a bubble.

Most economists polled said there was a risk of a sharp correction in Toronto and Vancouver, two of the country's most expensive markets, though they were divided on the likelihood that Canada as a whole would see a painful pullback.

While Canada avoided the worst of the housing crash that hit the United States a decade ago, prices have risen nearly in a straight line since, nearly doubling, raising worries consumers have taken on too much debt and are at risk if prices drop.

Despite steps taken by policymakers in recent years, 13 out of 20 economists thought it likely local or federal governments will introduce new regulations in the next six months.

Still, the upswing is expected to continue, the poll showed.

Nationally, home prices are expected to rise by a median 4.7 percent this year, the highest pace since polling for 2017 began two years ago and stronger than the 1.8 percent that was forecast in the last poll done in December.

Prices are seen rising 3.5 percent in 2018, up from the previously expected 2.0 percent, and 2.8 percent in 2019. Expectations for 2018 are the highest since polling began last year.

"There's no doubt interest rates are feeding cheap credit to homebuyers. But there's also an element of increased investment in the market, both domestic and foreign," said Sal Guatieri, senior economist at BMO Capital Markets.   Continued...

 
File Photo: A real estate for sale sign is pictured in front of a home in Vancouver, British Columbia, Canada, September 22, 2016.   REUTERS/Ben Nelms/File Photo