As the average Toronto home price surpassed $1 million for the first time, RBC Economics warned of overheating in the Canadian real estate market as a “fear of missing out” takes hold.
“Super-strong demand is quickly depleting inventories across the country,” RBC senior economic Robert Hogue wrote in the report released Tuesday, and competition is “fierce” between buyers — even in many smaller markets.
“Such dynamics often lead to self-reinforcing price trends,” the report said.
The Toronto Regional Real Estate Board (TRREB) reported Wednesday that the average selling price for all home types in February was up 14.9% from the same period last year to $1,045,488, cracking the $1-million mark for the first time.
Home sales last month reached 10,970, a 52.5% jump from the 7,193 homes sold in the same month last year.
The rise in prices was largely attributed to the suburban 905 area code that surrounds Toronto.
The board said February’s numbers indicated that Covid-19 fears aren’t keeping buyers and sellers out of the market and that their interest in purchasing or listing homes will fuel record prices to climb even higher.
Last month, TRREB predicted the average selling price in the region would be $1.025 million by the end of 2021, up from an average $929,692 in 2020. February’s numbers surpassed that expectation already.
“It’s clear that the historic demand for housing experienced in the second half of last year has carried forward into the first quarter of this year with some similar themes, including the continued popularity of suburban low-rise properties,” said TRREB president Lisa Patel in a release.
She warned that trouble was on Toronto’s horizon because of disparities between supply and demand that are already shifting conditions to favour sellers and challenging other markets including Vancouver.
Vancouver’s real estate board reported on Tuesday that the supply of listings isn’t keeping up with demand, as February sales jumped 73% from the same period last year.
“It’s also evident that the supply of listings is not keeping up with demand, which could present an even larger problem once population growth picks up following widespread vaccinations later this year and into 2022,” TRREB’s Patel said.
RBC said the main near-term risk is overheating and not price collapse, and that the odds of policymakers intervening in housing markets increases the hotter the markets get.
If the economy outperforms expectations and interest rates rise, the tailwind from exceptionally low rates could vanish, the report said.
But RBC also warned that the pandemic still poses a threat to housing markets. New Covid-19 variants could further destabilize the economy, high unemployment could outlast government support and hurt housing demand, and lower immigration levels could persist, making condo markets vulnerable.
For now, though, strong condo construction isn’t a sign of overbuilding, the report said: “Very low unsold inventories significantly limit risks near term.”
TRREB reported that the number of new Toronto listings surged 44.6% in February but that active listings were down 1% to 8,727.
Purchases were up in Toronto across most housing types. Condominiums led the way with sales volume increasing 64.3%, but average prices in the category dropped 3.7% to $642,346.
Townhouse sales climbed 62.5% and prices increased 17.3% to $858,025.
Semi-detached sales increased 53.1% and prices grew 20.3% to $1,050,820. Detached sales increased 43.8% to 4,943 and prices rose 23.1% to $1,371,791.