Commentary: Era of price growth might be over

The inflationary era of Canadian home prices might be over, and the gradual deceleration of the pace of growth could pose an assortment of grave risks to the national financial system, according to an analyst.
 
In a September 20 contribution for The Motley Fool, markets observer Ryan Vanzo cited the Canadian Real Estate Association’s recent revision of its 2017 predictions, from a 0.2 per cent rise in national home sales and a 0.1 per cent increase in prices to a significant 0.6 per cent drop in sales and a 0.2 per cent decline in prices.
 
“This reversal could be catastrophic,” Vanzo warned. “The party may be over, and that could have major consequences on the rest of the Canadian economy.”
 
Vanzo’s viewpoint echoed that of the Bank of Montreal, which previously cautioned that “if this kind of price growth continues, it will end badly.”
 
Canada’s dynamic real estate segment is among the few things keeping the economy afloat as the country experienced one of its slowest GDP growth rates on record back in August, according to Statistics Canada.
 
Together, red-hot housing markets and vigorous bank lending now comprise approximately 20 percent of the economy.
 
Further cooling down might come in the form of Ontario possibly implementing a levy akin to that of British Columbia’s new 15 per cent foreign buyers’ tax, Vanzo said.
 
CREA numbers revealed that sales declined for the fourth consecutive month in August, the same month the B.C. tax was enacted.
 
“Single family homes sales were already cooling before the new land-transfer tax on foreign home buyers in Metro Vancouver came into effect,” CREA announced. “The surprise announcement of the new tax caused sales to brake hard.”
 
CIBC economist Benjamin Tal argued that since the tax has frightened off foreign capital to other markets, Ontario will be forced to impose a similar levy to keep Toronto housing prices at a manageable level.
 
“Policymakers have to use demand tools to deal with what is essentially a supply problem,” Tal said. “Ontario will have little choice but to do the same.”

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Canadian real estate is still affordable - just not in loonies
Toronto market boosts national housing prices

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