By Julie Gordon

OTTAWA, (Reuters) – Canadian property prices will rise again as first-time buyers and investors scramble for homes before interest rates increase. This ignores a Bank of Canada warning that sudden drops in housing prices could be possible.

Paul Beaudry, Deputy Governor of the Central Bank, told potential home-buyers on Tuesday that it was a good time to think about whether or not this is a great time to purchase. He referred to increased investor activity and market frostiness in some cities.

These conditions may “expose markets to a greater chance of a market correction”, he stated.

Last month, Bank of Canada signaled that overnight rates, which are currently at an all-time low of 0.25%, might rise in “middlequarters” of 2022. Analysts believe that another rush to purchase is already underway.

Investors and people generally get involved in the stock market when interest rates rise. According to Benjamin Tal (deputy chief economist, CIBC Capital Markets), there will be an increase in activity for the next few weeks.”

Canadian house prices soared 31.6% over the past year in March, hitting a record-breaking high. Prices then began to soften a bit this summer. Now prices are accelerating once again with the October average price just below March’s peak.

Rating agencies are paying attention. Fitch values Toronto’s market for housing at 32%, while Vancouver is at 23%. Moody’s Analytics (NYSE:) Analytics has Vancouver at 23%, Toronto at 40%, and Hamilton, Ontario at 73%.

Toronto’s most expensive city is now worth C$1.2 Million ($947,493). That figure was up 19.3% over last year. For detached houses, it averages C$1.5 million.

Canadian Prime Minister Justin Trudeau promised to take action on the runaway stock market. However, critics have noted that national prices rose 77% since Trudeau took office in 2015.

Ron Butler is a Toronto mortgage broker who says clients are desperate for him to be there.

It is evident that people are unable to see the truth and have given up. He stated, “The prices will go up forever. We must purchase now.”

Butler stated that he’s working with a long-standing Toronto renter, who had been waiting for years for the prices to drop so he could enter the market. He is now buying a Hamilton home an hour west because he fears he won’t own one.

Butler said fear is not a motivator for buying a house. She also stated that FOMO, or Fear of Missing Out, has become a major factor in the purchasing process.

«RUSH TO BEATE RATE HIKES»

Butler says that about 25% of housing supply is made up of investors who rent or keep properties for future rental income. The figure is even higher in larger cities, and in particular pre-sale condo market.

According to the Bank of Canada, investor buying increased by two-thirds since the COVID-19 pandemic began. However economists believe that demand is still strong.

“We don’t expect a collapse. However, we expect prices to be close to flat next fiscal year,” stated Jimmy Jean, Chief Economist at Desjardins Group Montreal. He also said that the demand for goods and services is likely to stay “pretty decent”, pointing out strong immigration.

Doug Porter, BMO Capital markets’ chief economist, expects that there will be a quick “rush” to avoid rate rises in the near-term, however, this would only lead to a modest pullback in market conditions which were heightened by the pandemic.

Porter noted that “the history of the past fifteen years has been cluttered by those calling for the crash in Canada’s housing market to be proven wrong time after time.”

($1 = 1.2665 Canadian dollars)