Recently, BMO’s chief economist said Toronto real estate was in a bubble. Then, Scotiabank’s CEO followed suit. One by one, some of Canada’s biggest financial institutions have been dropping the “B” word to describe conditions in the most active housing market in the country. But not all experts agree—TD Bank has added another voice to the debate.
“The key element missing from the bubble story is debt,” writes Diana Petramala, an economist for TD Economics, in response to the Canadian Real Estate Association’s latest statistical report, which included Canadian home sales data for the month of February.
Last month, home prices in the Greater Toronto Area were up 24 percent from a year ago, according to CREA. Over that time, Guelph and Milton—two markets surrounding the GTA that have been heating up as would-be Toronto buyers look for affordable options elsewhere—home prices climbed 29 percent and 18 percent, respectively.
But in her commentary Petramala, who regularly writes about the Canadian housing market, points to the current rate at which household debt is growing. Household debt is rising at a year-over-year rate of 5 percent, says Petramala, citing Statistics Canada’s National Balance Sheet Accounts. The pace is “relatively sustainable,” she adds.
Mortgage regulations that Canadian Finance Minister Bill Morneau announced late last year are playing a part in subduing risks facing hot local housing markets, Petramala suggests. “While mortgage rules have not slowed the market, they appear to have kept debt growth in check,” Petramala explains.
As a result of the new rules, all applicants for insured mortgages now undergo a stress test that looks into their ability to repay their potential debt even if faced with higher interest rates. Previously, only buyers who couldn’t cough up a down payment of 20 percent faced this testing.
Still, Petramala’s report isn’t exactly bullish on the Toronto housing market; she doesn’t give it a shining evaluation. “There is no denying that markets in Ontario are heating up to a pace that is too hot and certainly unsustainable. While TD Economics still doesn’t believe we’re in bubble territory, we do think that the market has the potential to increasingly approach one,” Petramala notes.
Elise Kalles is the exclusive agent representing the Toronto/Ontario real estate markets as a member of the Haute Residence Real Estate Network. View all of her listings here.
Image courtesy of Flickr/pandajenn1234