The activity we’re seeing the real estate market is raising red flags with federal regulators and the Bank of Canada. When the 2016-17′ boom reached its peak governments at all levels rapidly intervened to cool activity.
We all remember the introduction of the foreign buyers tax, tighter mortgage approvals, the mandating of mortgage insurance at certain levels, etc. These government interventions succeeded, eventually precipitating what was effectively a flat-lining of prices and a slowdown in demand. Once the shock subsided and the market adjusted, the recovery kicked in though, rendering the government action a grand delay. We’re now not far off from the 2016-17′ boom peak. The boom is back, and the apprehension is back with it.
Bank of Canada Governor Stephen Poloz summed up his opinion on the present status of the housing market with one word – “froth.” The BOC (Bank of Canada) notes that the rise is unsustainable and expects the market to naturally self-regulate if the rise in prices becomes excessive for prospective buyers. As always, the BOC is standing by to raise rates in the event that inflation and housing price growth becomes excessive. This is a worst-case scenario, and in many ways, softening national economic growth would spur the BOC to cut rates instead. The BOC will definitely monitor real estate stats closely in Q1 & Q2 2020 and will review its options if the housing momentum we’ve discussed intensifies.
As for the provincial government in Queen’s Park, it is unlikely to interfere in the housing market in any way other than stimulating the growth in supply (cutting developmental approvals). The federal government is also limited in its capacity to address a hot market as it must balance affordability with controlling demand. A federal election is also soon on the horizon, which will see activity designed to increase supply and facilitate easier buying of housing, not the opposite. At the end of the day, if regulators and bureaucrats feel that the housing market is getting out of control they will move rapidly in concert with the BOC to add new measures, despite any political pressures.