There are a lot of factors driving up real estate prices in the Greater Toronto Area.
But let’s take the time to talk about one specifically.
BMO Capital Markets points out that in 2016, a record number of people moved to Ontario. 1750,000, in fact. That led to a 1.2% boost in Ontario’s nearly 14 million people.
“With the majority of new arrivals settling in the Greater Toronto Region, the influx goes some ways to explaining red-hot demand and sky-high prices,” says Sal Guatieri, senior economist at BMO Capital Markets.
It’s a huge upsurge in the amount of people moving to the region. Fewer than 100,000 arrived in Ontario in 2015. The year before, the number failed to hit the 70,000 mark.
It’s no surprise that recent immigrants and those from other provinces are settling here. Ontario’s economy is among the fastest growing in Canada, annualizing 2.6% growth and beating the performance of the G7 countries in the first three quarters of 2016.
Both the real estate and finance sectors are creating jobs at a breakneck pace in Ontario. Meanwhile, other provinces, such as Alberta, are dealing with continuing job losses from low oil prices.
BMO Capital Markets says that immigration helps explain why prices are going up. But that’s not where action is needed in terms of reining in the out-of-control price surge in Ontario real estate. No, BMO recommends taking action on interest rates.
After all, we relived this scenario in the 1980s: strong immigration to the GTA, low interest rates, and speculation all helped led to a housing bubble where, like today, prices went up more than 100% in less than a decade.
A series of interest rate hikes by the Bank of Canada helped end that run. Bank of Canada (BoC) Governor Stephen Poloz has come out and said that despite the parallels, he doesn’t believe interest rate hikes will end the bubble.
Robert Kavcic, senior economist at BMO, disagrees.
“It was the BoC rate hikes that ultimately broke the late-80s run and (fully understanding that rate hikes are not local) a 4%, 5-year fixed rate would quickly do to Toronto prices what an array of other cute policy tweaks haven’t/won’t be able to do.”