Canadian home prices continued their upward march in April, driven by strong investor demand in Vancouver, as cracks in the Toronto condominium market may be starting to appear.
The Canadian Real Estate Association said yesterday the average price of a home sold in April in Canada was $372,544, up 8% from a year ago. It was the third straight month that the average price rose 8% on a yea-over-year basis but the Ottawa-based group cautioned that the figure was skewed due to “surging multimillion-dollar property sales in selected areas of Greater Vancouver.”
The group also shrugged off slow April sales, which dipped 4.4% from March on a seasonally adjusted annual basis and 14.7% on an actual basis from a year earlier. The slow sales are said to have been driven by new mortgage rules that came into effect April 19 and made borrowing tougher, leading people to rush into purchases in March.
The same sort of impact was felt in April 2010. Purchases moved forward to avoid mortgage rule changes, higher interest rates were feared and the harmonized sales tax loomed in two provinces.
“This makes it difficult to compare,” said Gregory Klump, chief economist of CREA. “Changes to mortgage regulations that took effect in April 2011 likely sidelined a number of first-time homebuyers. By contrast, higher-end homes sales in Greater Vancouver and Toronto had their best April ever.”
Worries about the sustainability of the housing market could be stoked by a report from Urbanation Inc., which monitors the Toronto condominium market. The group says more than 50% of condominiums purchased in the last year were by buyers who do not intend to occupy their units and plan to rent in many instances.
Condominium rents in Toronto in the first quarter of 2011 were $2.11 per square foot compared to $2.09 a year earlier, a 0.8% increase. Condominiums being registered now and ready to be occupied are priced for sale at $450 per square foot range while newer units are going for $550 per square foot.
“What happens when these newer units hit the market?” said Ben Myers, executive vice-president of Urbanation. “At $550 per square foot a 750 square feet [condominium] is $413,000. You put 25% down and you have a mortgage of $310,000. Take a five-year variable rate mortgage at 3% with 25-year amortization and you get $1,475 a month mortgage. Your condo fee is $345, property tax is another $345 and you are up to $2,200 in carrying costs. That’s a huge [operating] loss [given the average rental rate would bring in just under $1,600/month]. People are buying these for capital appreciation.”
Don Lawby, chief executive of Century 21 Canada, says the housing market has been affected by foreign investors — notably Chinese — who have reacted to tougher tax rules in their home country by investing abroad.
“They are buying investment properties and not just in Vancouver but to some degree in Ontario and Calgary,” said Mr. Lawby, adding many of those investors are not concerned with carrying costs. “They are not afraid to offer above price and they are not afraid to get into a bidding war.”
Nevertheless, Mr. Lawby says while these investors are skewing national averages, he maintains the overall numbers are small and the impact on the larger market minimal.
Toronto-Dominion economic analyst Leslie Preston said while April numbers present a market with falling sales and rising prices, she agreed market conditions were exaggerated by some one-time issues.
“I think the effect in April was a little larger and I would expect to see a bit of bounceback in May because of the decline,” says Ms. Preston. “But we have been calling for awhile now for a mild softening in
Canadian housing markets overall this year, particularly as interest rates