The efforts of provincial government and federal regulators to cool off Canada’s hottest housing markets will amount to little, and Toronto and Vancouver will soon be back to their old tricks, according to a new report from CIBC.
That’s because both cities — and particularly Toronto — are experiencing a shortage of housing supply, and the underlying demand may be “stronger than perceived,” deputy economist Benjamin Tal wrote in a client note Tuesday.
With another round of mortgage rule-tightening to kick in in January, reducing the amount of mortgage Canadians can afford by around 20 per cent, many analysts are predicting a slowdown for the housing market, especially in the priciest cities, Toronto and Vancouver.
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But Tal says this slowdown will be mild and short-lived.
“The level of activity is likely to stabilize and perhaps soften in the coming quarters as markets adjust to recent and upcoming regulatory changes,” he wrote.
“But when the fog clears it will become evident that the long-term trajectory of the market will show even tighter conditions.”
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Tal argues that both Toronto and Vancouver are suffering from a shortage of supply, particularly Toronto, where Tal says most of the available land for new developments is years away from being ready.
And with the federal government increasing immigration levels to bring in an estimated 1 million newcomers over the next three years, Tal says pressure on these housing markets will continue to grow.
“Without significant changes to land and rental policies alongside a dramatic change to housing preference among buyers, those centers will become even less affordable,” he wrote.
Non-permanent residents, such as students, are increasing as a share of the population and they may not be properly accounted for in the demand for housing, Tal wrote.
“The main issue facing this market is a significant and worsening lack of land supply.”Benjamin Tal, CIBC
And he doesn’t believe the new mortgage rules will change much. Under the new rules, borrowers of uninsured mortgages — those with 20 per cent down or more — will have to qualify at a mortgage rate that is about two percentage points higher than the offered rate.
“In the past, borrowers have seen tremendous ability to adjust to new situations …
Source:: The Huffington Post – Canada Travel