Once again, a leading Canadian authority is sounding the alarm - are they right?
Peter Routledge, head of the Office of the Superintendent of Financial Institutions has just cautioned that higher interest rates this year could put an end to the “speculative fever” in Canada’s housing market
“In some markets, where you had really rapid increases in prices, you could see a fall of 10 per cent, 20%.”
- Peter Routledge, OSFI
This is a striking change in position from Routledge who only two months ago was very supportive of the speculative frenzy driving up home prices. During a BNN Interview host Amanda Lang asked Routledge for his thoughts on recent data from the Bank of Canada showing a surge in investors buying single family homes and a concern from the Bank that price expectations may have become extrapolative, Routledge had this to say: “The investors are making an investment to generate a return, that’s a free market economy, more power to them.”
What solution was Routledge advocating for in November 2021 to cool Canada’s investor driven housing boom? Build more homes! (See my views on this solution further below in this report)
Two months later, it has become abundantly clear that Routledge’s solution isn’t working out as well as he had hoped. A country can’t build their way out of a speculative housing boom — buyer expectations move far more rapidly than new housing construction.
However, while Routledge’s more cautious tone about Canada’s housing market is a step in the right direction, I’m not entirely convinced we are going to see a 20% decline in house prices this year.
As I discussed in last month’s report, home prices tend to be sticky on the way down, and while, in more recent memory, the Toronto area did see a rapid 20% decline in house prices in 2017 as I tracked and reported then, I’m not convinced we’ll see the same type of rapid shift in buyer and seller beliefs to see a similar rapid decline for the reasons I discussed in January.
John Pasalis is President of Realosophy Realty, a Toronto real estate brokerage which uses data analysis to advise residential real estate buyers, sellers and investors.
A specialist in real estate data analysis, John’s research focuses on unlocking micro trends in the Greater Toronto Area real estate market. His research has been utilized by the Bank of Canada, the Canadian Mortgage and Housing Corporation (CMHC) and the International Monetary Fund (IMF).