One of Canada’s largest banks, the Bank of Montreal (BMO) has a recent case of split personality, in one week saying Toronto is the hottest real estate market in Canada, only to report the next week that bank investors should brace for a slowing market, particularly because of overbuilt condo markets in the city.
According to The Globe and Mail, on January 5th, BMO economist Robert Kavcic said that Toronto “is starting to stand out as the hottest real estate market right now,” as the Toronto Real Estate Board (TREB) recently reported sales up in December 10 percent over the year, with the average home sale price hitting $452,436, the second best year on record dating back to 1994. Kavcic mentioned the market was expected to cool after a 13-year boom, and that despite a risky condo market, the ratio of new listings to sales is in line with historic norms.
Apparently, within five days, The Globe and Mail reported that BMO told an investor conference in Toronto that the national softening of housing was of concern, most notably the “significantly overbuilt” Toronto condo market, warning investors of the newly risky market – a far cry from being “the hottest real estate market” as foretold just days beforehad.
Hot or not?
Royal Bank of Canada’s CEO, Bill Downe told The Globe and Mail, “I wouldn’t give up on the Canadian housing market, but there has to be a soft landing – there has to be a landing,” adding that internal stress tests indicate a drop in housing prices by as much as a quarter and while the bank is confident in their operations should that dire situation occur, RBC’s exposure to the Canadian condo development market alone is over $2 billion.
Canadian lenders are bracing for a potential downturn, even if Toronto is the hottest real estate market in a cooling nation but Downe reiterates that the American housing market is structured differently and that the Canadian market is vulnerable, but less so than the U.S. Downe told The Globe and Mail, “Notwithstanding the fact that yet there is a concern about consumer credit levels [in Canada], I think it’s also very important to constantly reiterate the structural differences between markets in Canada and markets in the places like the United States. When you look at the overall Canadian bank lending levels, when you look at the presales when you look at the customers that we’re dealing with, we feel pretty comfortable that, notwithstanding there’s vulnerability, we can manage through it.”
Hot or not, Canadian real estate is cooling down but does not look to crash quite like the American market has.
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