By Julie Gordon

OTTAWA (Reuters) -Canadian housing prices are set to surge again in the coming months as investors and first-time buyers scramble to buy before interest rates go up, ignoring a warning https://www.reuters.com/markets/us/canadas-housing-market-higher-risk-correction-says-bank-canada-2021-11-23 from the Bank of Canada that there is a high risk of a sudden price drop.

Paul Beaudry (Central bank deputy governor) told prospective homebuyers Tuesday that they should consider whether it’s a “good or bad time to buy.” He pointed out market volatility in particular cities as well as renewed investor activity.

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 said that there is likely already a rush to buy.

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 acceleration of activity in the coming months.

Canadian house prices rose 31.6% in March year-over-year to a new record, before easing a little over the summer. The prices are now increasing again with the October average price just below March’s peak.

Rating agencies have noticed. Fitch had rated Toronto’s market for housing at 32%, while Vancouver was ranked 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$1.2million (or $947,493). That figure was up 19.3% over last year. For detached houses, it averages C$1.5million.

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, a Toronto mortgage broker says that he’s getting more and more busy with clients who want to enter the market.

He said, “We can see it literally hourly right here…people who are tired of waiting and saying: ‘The price is going up forever. I must buy 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 that he could enter the market. Because he worries that he may never be able to own his home, he’s now moving an hour west from Toronto.

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 BEAT RATE HIKES”

Butler says that about 25% of housing supply is now owned by investors. That number is higher in larger cities, and in particular pre-sale condo market.

Although the Bank of Canada stated that investor buying doubled after the COVID-19 pandemic erupted, economists still believe there is a strong demand.

“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.

Chief economist of BMO Capital Markets Doug Porter also anticipates a “rush to beat rate increases” in the short term, but only then a slight pullback for markets that have been supercharged with 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)