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Home prices in prominent Canadian markets ramped up last month, but the acceleration we’re seeing now is expected to ease off by the second half of next year as these markets become more balanced.
In an RBC Economics Thought Leadership report published this week, senior RBC economist Robert Hogue said that property prices “reaccelerated further” in major markets during November thanks to strong demand and dwindling inventories.
In the Greater Toronto Area, “aggressive” bidding drove the composite MLS Home Price Index (HPI) up 3.9 per cent from October to $1,173,000. Over the past two months, GTA prices have climbed 2.2 per cent and 4.3 percent, resulting in a $114,000 increase over a three-month period. This exceeds the $99,000 jump in prices that was recorded in the first three months of 2021.
“Clearly, affordability is taking a huge hit right now and the situation is likely to worsen when interest rates go up,” said Hogue. “Self-correcting mechanisms will eventually kick in to rebalance the market though exceptionally tight supply is poised to keep prices on an upward trajectory in the near term.”
A similar story unfolded in Western Canada last month. Bidding wars in Vancouver pushed the MLS HPI up one per cent from October and 16 per cent year-over-year, a trend that marked a “further acceleration in prices.”
By housing type, the MLS HPI for Vancouver condo apartments jumped 11.4 per cent annually and 9.5 per cent from October, while single-family homes reported a 20.8 per cent and 20.5 per cent gain on a yearly and monthly basis. Calgary’s composite MLS HPI also saw increases in November, rising at a near double-digit rate according to the RBC Economics report.
Despite these recent increases and anticipated price growth in the near future, Hogue pointed out that housing price pressures would see some relief by the second act of 2022.
“We expect extremely tight demand-supply conditions will keep prices under intense upward pressure in the near term though we see such pressure easing significantly by the second half of 2022 as markets achieve a better balance,” said Hogue.
Although market trends over the past three months have flipped from the cooler periods recorded during the spring and summer, Hogue said that it is unlikely we’re seeing another “leg up in the market’s unprecedented run.” Instead, the current activity we’re witnessing is related to buyers “front-running interest rate increases,” a short-lived trend that is expected to fade in the coming months and lead to moderation.
“Our view remains that deteriorating affordability (arising from soaring prices or higher interest rates, or both) and easing pandemic restrictions will gradually cool demand in 2022,” said Hogue.
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