Up, up, up: Canada house prices poised to surge again despite central bank warning

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Canadian housing prices are set to surge again in the coming months as investors and first-time buyers scramble to buy before interest rates go up, ignoring a warning from the Bank of Canada that there is a high risk of a sudden price drop.

Central bank Deputy Governor Paul Beaudry told would-be home buyers on Tuesday to consider if it is a “good time to buy or not,” pointing to market frothiness in certain cities and renewed investor activity.

Those conditions could “expose the market to a higher chance of a correction,” he said.

The Bank of Canada last month signaled the overnight rate, currently at a record low 0.25%, could start rising in the “middle quarters” of 2022. Another rush to buy is probably already under way, analysts said.

“Whenever interest rates start rising, people get into the market, including investors. So you will see an acceleration in activity over the next few months,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets.

Canadian house prices skyrocketed 31.6% year-over-year in March to hit a record high before softening a bit over the summer. Prices are now accelerating again, with October’s average price barely below the March peak.

Ratings agencies are taking notice. Fitch has pegged Toronto’s housing market at 32% overvalued and Vancouver’s at 23%. Moody’s Analytics also has Vancouver 23% overvalued, Toronto 40% and Hamilton, Ontario, 73%.

The average price of a home in Toronto, Canada’s biggest city, hit C$1.2 million ($947,493) in October, up 19.3% from the previous year, and detached homes now average C$1.5 million.

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