Canada house prices to rise sharply on cheap money, speculation

Wed Aug 31, 2016 12:59am EDT
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By Anu Bararia

BENGALURU (Reuters) - The sharp acceleration in Canadian home prices shows no sign of abating this year, though economists expect the pace will be reined in by high household debt and a growing lack of affordability, a Reuters poll found.

Foreign wealth, cheap borrowing costs and bets that urban centers Vancouver and Toronto will remain profitable will likely support the Canadian property market over the next few years.

House prices are forecast to rise 10 percent in 2016, almost double the pace expected in May's survey, and the fastest since polling for 2016 began two years ago, according to the poll of over 20 forecasters. There has been no consensus forecast in double digits since comparable records began in 2013.

Although the rise in house prices is predicted to cool to 3.5 percent next year, that would still be the highest since polling started for 2017 over a year ago. The median for 2018 was for a 3 percent rise.

"The story there is just the surprising acceleration in home prices in the greater Vancouver and Toronto areas and the spillover price pressures to their surrounding regions," said Sal Guatieri, senior economist at BMO Capital Markets.

"I would say almost certainly that foreign wealth is driving prices higher in Vancouver and Toronto."

Property prices this year in those two hot markets are expected to rise 15 percent and 22 percent, respectively, versus 9 percent and 16 percent in the previous poll. The highest estimate was for a rise of 20 percent and 32 percent.

After the Bank of Canada cut interest rates twice last year to dull the sting of the oil price crash, house prices rose further. They have nearly doubled over the past decade while the household debt-to-income ratio has reached alarming heights, 165.3 percent by the end of March.   Continued...

Realtors' signs are hung outside a newly sold property in a Vancouver, B.C., Canada neighbourhood where houses regularly sell for C$3-C$4 million (US$2.7-3.6 million) September 9, 2014. REUTERS/Julie Gordon/File Photo - RTSIA1K