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Canadian home prices poised to surge again as buyers rush to beat rate hikes

OTTAWA — 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 from the Bank of Canada that there is a high risk of a sudden price drop.

Central bank Deputy Governor Paul Beaudry told would-be home buyers on Tuesday to consider if it is a “good time to buy or not,” pointing to market frothiness in certain cities and renewed investor activity.

Those conditions could “expose the market to a higher chance of a correction,” he said.

The Bank of Canada last month signalled the overnight rate, currently at a record low 0.25 per cent, could start rising in the “middle quarters” of 2022. Another rush to buy is probably already underway, analysts said.

“Whenever interest rates start rising, people get into the market, including investors. So you will see an acceleration in activity over the next few months,” said Benjamin Tal, deputy chief economist at CIBC Capital Markets.

Canadian house prices skyrocketed 31.6 per cent year-over-year in March to hit a record high before softening a bit over the summer. Prices are now accelerating again, with October’s average price barely below the March peak.

Ratings agencies are taking notice. Fitch has pegged Toronto’s housing market at 32 per cent overvalued and Vancouver’s at 23 per cent. Moody’s Analytics also has Vancouver 23 per cent overvalued, Toronto 40 per cent and Hamilton, Ontario, 73 per cent.

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