Move-up buyers inflating housing bubble

Toronto’s growing housing bubble is being blamed on desperate first-time buyers chasing a dwindling inventory of homes for sale, but that’s a red herring. The truth is that it’s mainly being driven by move-up buyers leveraging the equity in their existing homes. New mortgage rules introduced last year might not prevent a further escalation in prices and a more painful bust down the road. Since these move-up home buyers obviously already live in a home and are largely responsible for the big increases in house prices, it stands to reason that there isn’t a major shortage of housing causing housing prices to escalate. Investors are the other reason for rising house prices. There are always shortages of housing for people wanting to buy their third, fourth or tenth property! The important data releases this week are retail sales for December and consumer prices for January. We estimate that a drop in auto sales led to a small 0.1% m/m decrease in retail sales. The headline inflation rate likely rose to 1.7%, from 1.5%, partly on account of a jump in gasoline price inflation. The Bank of Canada’s new core-CPI common measure was likely unchanged at 1.4%.