January 26, 2017 / 5:12 PM / 8 months ago

Canada's biggest bank warns on Toronto housing market

A Royal Bank of Canada (RBC) sign is seen outside of a branch in Ottawa, Ontario, Canada, May 26, 2016. REUTERS/Chris Wattie

TORONTO (Reuters) - Royal Bank of Canada (RY.TO) warned on Thursday that policymakers are more likely to introduce measures to cool the Toronto housing market after home sales hit a record high in 2016.

“The likelihood of policy intervention to address housing risks in Toronto is increasing,” economists at Canada’s biggest bank said in its January Canadian Housing Health Check.

RBC did not specify whether further moves would be introduced by the federal government, the provincial government in Ontario or Canada’s financial regulator.

Canada’s finance ministry last year implemented stricter rules for mortgage providers while the provincial government in British Columbia slapped a 15 percent tax on foreign buyers to help bring prices down in the sky-high Vancouver market and make prices more affordable for ordinary people.

Separately, Canada’s federal housing agency on Thursday said that, for the second quarter in a row, overvaluation and price acceleration were causing stresses in the housing market.

The Canada Mortgage and Housing Corp (CMHC) said six cities showed strong signs of problematic conditions, including Vancouver and Toronto. That was the same number as in October, though Victoria’s risk level rose, while Calgary’s declined.

“We continue to detect strong evidence of problematic conditions in Canada,” CMHC chief economist Bob Dugan said in a statement.

“Price acceleration in Vancouver, Victoria, Toronto and Hamilton indicates that home price growth may be driven by speculation as it is outpacing what economic fundamentals like migration, employment and income can support,” he added.

The Vancouver housing market has slowed since the foreign tax was introduced although economists are divided about how much was due to the tax. Ontario has played down the chances of implementing a similar tax but has not entirely ruled it out.

RBC said in its report that prices have continued to accelerate in Toronto particularly for single-family detached homes, which are in short supply.

Reporting by Matt Scuffham in Toronto and David Ljunggren in Ottawa; Editing by David Gregorio and Jeffrey Benkoe

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