Canada real estate appreciation fuelled by expectations

Canada’s housing sector has been considered as among the most desired real estate in the world today, as reflected in the pricing and bidding wars in the country’s hottest markets. An analyst pointed out, however, that one shouldn’t expect this state of affairs to be sustainable in the long run.

Maclean’s business editor Jason Kirby noted that while not many people actually expect double-digit price growth in Canada to last forever, this pace is raising false hopes among buyers and sellers.

February numbers showed that Vancouver average real estate prices shot up by 20 per cent, while Toronto homes exhibited 15 per cent growth.

“Maybe the average house won’t be worth $21 million, the thinking goes, but given the fact that dumpy teardowns in hot markets in Vancouver and Toronto are already selling for seven figures, it’s not a stretch to think the average home will be worth at least a few million dollars not too far down the road,” Kirby wrote in the March 8 edition of his column.

The analyst pointed at the “eye-popping” increases as factors that motivate market participants to engage in price arms races, which in turn stimulate even greater growth as well as even more unrealistic expectations.

“For homeowners, even the tiniest shred of a possibility that their home might eventually fetch several million dollars equates to a powerful psychological windfall,” he said.

“Meanwhile, those who have been sitting on the sidelines and seeing 17 per cent annual price increases are prone to panic, fearing they’ll miss out on further gains or be priced right out of the market,” Kirby warned. “That may entice them to leap in before homes become truly unaffordable, even if it means stretching their finances dangerously thin.”

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