Canada

Canadian Real Estate Needed Tighter Monetary Policy A Year Ago: BMO

Just when you think Canadian real estate can’t get any more exuberant, the central bank straps a rocket to it. That was the take from BMO, whose Friday research note is a quick look at Toronto real estate prices. The city, much like the rest of Canada, is seeing some of the highest home price growth since 2017. Except back then, various levels of government considered it an emergency. Now they’re pumping the market higher. 

The country’s oldest bank didn’t mince words, pinning the exuberant price growth on the Bank of Canada (BoC). The central bank is bordering on irresponsible, ignoring its mandate. BMO says they should have raised rates a year ago — or when prices were 30% lower.

Toronto Home Prices Are Rising At The Fastest Rate Since 2017

For those waking up from a coma, Canadian real estate had a heck of a year. In November, a benchmark home increased 25.4% from a year before. It was the largest rate ever. Yesterday, Toronto reported annual home price growth of 30% in December. The city hasn’t seen prices rise this fast since the 2017 mini-bubble.

Toronto Real Estate Price Growth

The price of a “typical” composite home across Greater Toronto.

Source: TRREB; Better Dwelling.

“Another month, another period with the Toronto housing market running amok,” said Robert Kavcic, a senior economist at BMO. “The benchmark price is now up more than 30% y/y, or in-line with the heights seen in early-2017 when the single-detached market was ablaze.”

Greater Toronto Benchmark Price Change

The annual percent change of TRREB’s benchmark price for all home types.

Source: TRREB; Better Dwelling.

Policymakers Scrambled To Throttle Credit Last Time

What slowed home prices last time? Policymakers considered it an emergency of excessive credit. Various measures were used to slow buyers, not “help” them. “Recall the almost coordinated action from multiple policymakers that ultimately cooled that market,” he said.

The bank boiled it down to three significant moves:

  • The Bank of Canada began to hike interest rates.
  • The Provinces implemented a tax on non-resident buyers
  • OSFI tightened qualification rules in a “meaningful way.”

What are they doing today? Not a whole lot. Actually, that’s wrong. The BoC and Government of Canada are injecting more credit into the market. Banks are also now exempting clients from the OSFI tightening. Actually, that’s wrong. They are doing a whole lot; they’re actively trying to drive home prices higher and undermine risk management.

Canada Needed Tighter Monetary Policy A Year Ago, When Home Prices Were 30% Cheaper.

BMO maintains the issue is too much credit and too many buyers, not supply. “If it seems like we’ve been repeating this over and over, it’s because we have: This market needs tighter monetary policy to break the psychology. It needed it a year ago, or 30% ago,” said Kavcic.

But there’s supply demand, right? “It’s telling that the biggest share of transactions, according to Teranet data, is now investors (i.e., multiple-property owners),” ends the bank’s note.

5 Comments

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  • questions guy 4 months ago

    the question is – will they be too late?

    I think they are… a bad situation was made excruciatingly worse!

  • Sam Huizenga 4 months ago

    Everyone under 30 who doesn’t have parents who can give them $100 g downpayment should go to sleep with the Arya prayer…..”Poloz…..Macklem…..Trudea……Freeland…….”

  • Utter Insanity 4 months ago

    Just a year ago? They shouldn’t have cut rates until after they saw what the damage was. They’re trying to tell us the Bank of Canada guessed EXACTLY how much credit was needed in March 2020 today, and they nailed it?

    These guys wouldn’t know the difference between their a$$ and a whole in the ground. They’re not super geniuses calculating the pandemic’s moves 2 years in advance, but that’s what we’re saying when we defend the current level of stimulus.

  • Scott MacKinnon 4 months ago

    This is one expensive vote buying scheme…

  • Max 4 months ago

    lol last year we needed further hikes in 2018 and 2019, maybe as early as 2015

Comments are closed.