Big banks are freaking out about Toronto real estate

Sparking speculation that further mortgage rule changes could be in the offing.

Add Canada’s largest bank to the growing chorus of lenders worrying about unsustainable price growth in Toronto.

“You’re seeing 20 per cent house price growth in a market where you shouldn’t see that much,” Dave McKay, the chief executive of Royal Bank of Canada, recently told the Financial Post. “That’s concerning. That’s not sustainable. Therefore, I do believe we are now at a point where we need to consider similar types of measures that we saw in Vancouver.”

Vancouver, of course, made headlines last year when it announced a 15% tax on foreign homebuyers – a move that was met with equal parts derision and support from industry players. 

The move is thought to have played a role in dampening Vancouver’s hot housing market, and a similar one could have a similar effect in Toronto, depending on how much influence foreign buyers actually have on propping up prices (no rock solid data yet exists).

RBC joins the Bank of Montreal in stoking the fire of fear that Toronto’s market is blazing out of control.

“Let’s drop the pretence. The Toronto housing market—and the many cities surrounding it—are in a housing bubble,” Doug Porter, chief economist for BMO Bank said in a recent report. “Everyone may have a slightly different definition of what a bubble is, but most can agree it’s when prices become dangerously detached from economic fundamentals and start rising strongly simply because people believe they will keep rising strongly, encouraging more buying.”

According to Porter, Toronto’s real estate market could experience a similar downturn to the one that occurred in the 1980s.

“Prices in Greater Toronto are now up a fiery 22.6% from a year ago, the fastest increase since the late 1980s—a period pretty much everyone can agree was a true bubble—and a cool 21 percentage points faster than inflation and/or wage growth,” he said. “And, the ratio of sales to new listings was a towering 93.5 in the region last month adjusted for seasonality (and was above 100 in Hamilton, Kitchener and the Niagara Region).”

According to the Toronto Real Estate Board, the average Toronto house cost $770,745 in January – up from $630,193 in January 2016.

And with the average single-family low rise home now selling for $1,028,395, it’s no surprise economists are getting anxious.

Related stories:

Amid higher house prices, rising indebtedness ‘worrisome,’ central bank official says
Observers’ takes on Toronto’s red-hot housing sector

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  • by David 2017-03-01 2:18:45 PM

    The Canadian Govt could easily find the percentage of foreign buyers that are in the market by checking the FINTRAC forms that are collected on every home transaction - unless of course home buyers or their agents are lying.

  • by george 2017-03-01 4:53:38 PM

    forget T.O...come to London..for a cool half million you can have my "raised bungalow in WESTMOUNT, lot 76x293, (half acre) separate entry to lower granny flat (self contained)..main floor, 3 bedroom, new windows, new roof (6 month old), central air, 2 fridge, 2 stoves, jet tub (in the granny flat), all hardwood floors, wall to wall broadloom, carport, large rear fenced yard for the pooch, deck, retractable awning (electric), 200 amp service, 5 years old, copper plumming, copper wiring, dement pad, parking for 5 vehicles, for an extra 45 bucks you can have my black sheppard (30 months young)...but since I live around the corner chances are he will run home. if he does I will plow the long driveway all next winter. 519 657-5577

  • by Ian Hocking 2017-03-05 5:39:47 PM

    Interesting that Canadian banks are "Freaking out " when to some degree they are behind the rise.
    A) take a look at the amount of foreign debt the banks are racking up, yes you guessed it the Canadian banking system is lending money to foreign buyers at an increasing rate
    B) when a house in Barrie is worth $450k 12 months ago and today sells $50k over asking at $625k ,exactly how are the banks saying , "that's ok, it values" duh !! It only value because there is, for now, a buyer behind them. The valuation system is out of whack with reality.
    If the banks are so concerned with the housing market maybe they should consider their own lending practices before asking the govt or a city to slap a tax on so they can blame someone else. I know only too well where the money is coming from that is driving this market, and it's pure speculation. In barrie we have never seen so many homes bought and left vacant. If you want to rent a house in barrie at the moment it's the easiest it's ever been, and the new owners are struggling to find people who can pay the rents they need to support their purchases.
    Did someone say bubble !!

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