Forecast Says Canadian Real Estate to Have Largest Annual Price Increase this Century

One of the country’s biggest real estate companies, Royal Lepage forecasted that Canadian real estate price will have its biggest increase for this century, the largest appreciation leap in the last 16 years.

The Rise Continues

In a report released mid of this week, Royal Lepage shared that low-interest rates and economic uncertainty in other countries are still fueling the high demand for Canadian real estate. The real estate company also predicted that prices will shoot up by about 12.4% this year as compared to 2015, making the average rise up to $563,000.

Royal Lepage added that Vancouver will still lead the price increase across the nation, with a predicted increase of 27% or an average home price of $1.206 million. Toronto, on the other hand, will average to $718,000, a rise of 14.9%.

Lepage shared that their previous forecasts have not accounted for a long period of low mortgage rates, a factor that is no doubt fueling the housing market at current time.

Lepage chief executive Phil Soper says that their previous forecasting models only included a modest rise in the cost of borrowing, hence their prediction of a slowing housing market as 2016 progresses. With the introduction of new social and economic disruptions, the Bank of Canada is most likely to leave the current interest rates as is, which will have an effect on real estate. He added that no correction seems to be in the works for the red-hot Toronto and Vancouver markets.

Foreign Ownership

Lepage added that foreign money is likely to continue flowing into the Canadian commercial real estate market despite the uncertainty brought by Brexit. Their internal surveys state that foreign markets do have an impact on Vancouver and Toronto real estate, but money is coming from more than just the European Union.

Lepage’s surveys of 74% of agents in Greater Vancouver and 71% of agents in GTA reported an increase in foreign investor activity in the second quarter of 2016. Foreign investors are defined in here as people who live outside of Canada for the past 6 months. Lepage also shared that 37% of Greater Vancouver agents and 35% of GTA agents believe that ownership by foreigners accounts for less than 10% of sales.

Meanwhile, the government is still thinking of ways to deal with the impact of foreign ownership of real estate. The federal finance minister recently announced that they’ve created a working group of municipal and provincial counterparts to consider the issue in Vancouver and Toronto. Earlier this week, Vancouver was granted the right to tax owners of vacant property by British Columbia, a move that partially affects foreign investors.

Too Much Government Involvement? 

Soper warned against too much government involvement in the housing market, saying that the excessive use of tax policy to artificially affect the values of assets in an open market economy like what Canada has could have a negative impact more so in an industry like housing. With that said, he also shared that people in real estate do have concerns about the impact on prices the fast-paced market will bring.

Soper warned speculators that people who see buying residential real estate as a buy and flip investment may get burned when the market slows down, so better treat it as a long term investment like they do at Royal Lepage.

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