The Latest in Canadian Real Estate – 2018 Forecasts
Dec 29 — 2017
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With the year end in sight, there is a barrage of forecasts and predictions for housing markets in 2018.
Wetook a sampling of some the latest forecasts on where home sales and prices are headed in the new year and beyond, and the impact that the new B-20 mortgage rules are likely to have.
CREA Forecasts Drop in Home Sales
The Canadian Real Estate Association (CREA) came out with its latest home sales forecast for 2018, and now expects a 5.3% drop in national sales to 486,000 as a result of OSFI’s new mortgage regulations.
That’s about 8,500 sales lower from its previous forecast. The Association also expects home prices to drop 1.4% in 2018 to $503,100.
“With some homebuyers likely advancing their purchase decision before the new rules come into effect next year, the ‘pull-forward’ of these sales may come at the expense of sales in the first half of 2018,” CREA said in a statement.
“Meanwhile, other potential homebuyers are anticipated to stay on the sidelines as they save up a larger down payment before purchasing and contributing to a modest improvement in sales activity in the second half of 2018.”
RE/MAX Outlook Points to Growth in the Suburbs
The 2018 Housing Market Outlook published by RE/MAX noted two distinct trends in 2017 that are expected to continue into 2018: the shift towards condo ownership in Canada’s highest-priced markets, Toronto and Vancouver, as well as a race to the suburbs for prospective homebuyers looking for better affordability.
In 2017, demand for condos in both Toronto and Vancouver continued to outpace supply, with prices increasing 16% and 22% year-over-year, respectively.
RE/MAX forecasts an overall 2.5% increase in residential sale prices in 2018 “as the desire for home ownership remains strong, particularly among Canadian millennials.”
Reuters Poll Points to Smaller Home Price Gains
A recent Reuters poll of analysts that found home prices are expected to grow just 1.9% in 2018 (vs. the 8.5% gain seen in 2017) due to the tougher mortgage rules and an expectation for further interest rate increases.
Toronto home prices are expected to cool to 2% in 2018 and rise to 3% in 2019, while Vancouver year-over-year price gains are still expected to hit 6% in 2018 before cooling to 4.6% in 2019.
A majority of the analysts surveyed said the new mortgage rules will have a “significant” impact on housing activity, though most noted that higher interest rates pose the biggest risk.
CMHC Sees Moderating Home Price Increases
It expects MLS average home prices to increase from a range of $493,900-$511,300 in 2017, to a range of $499,400-$524,500 by 2019.
CMHC also provided its forecast on expected interest rate increases over the near-term horizon: “In our baseline scenario, the posted 5-year mortgage rate is expected to lie within the 4.9%-5.7% range in 2018 and within the 5.2%-6.2% range in 2019.”
The Contrarian Views
The folks over at CIBC don’t foresee OSFI’s new regulations having much material impact on the housing markets in both Vancouver and Toronto, at least not over the long run.
In case you missed the research note from CIBC’s deputy chief economist Ben Tal, he wrote that government efforts to cool the Toronto and Vancouver housing markets will do little more than soften Canada’s two most expensive housing markets.
“On the surface [the stress test for uninsured mortgages] reduces the purchasing power of typical buyers by close to 20%, and we estimate that no less than 10-15% of mortgage originations will be impacted by that move. However, the actual reduction in demand is likely to be much less significant,” Tal wrote. “We suggest that the combination of the creative imagination of borrowers, some exceptions to the rule and increased activity among alternative lenders will soften the blow to the market as a whole with actual demand slowing by only 5-7% in the coming year.”
Tal also cites supply constraints for new housing development, particularly in Toronto, along with long-term housing demand in Toronto and Vancouver from new immigrants and non-permanent residents as increasing price pressure over the long run.
BMO economist Robert Kavcic noted that the adjustment in the Toronto market is ongoing.
“But strong underlying supply-demand fundamentals should prove supportive next year once the remaining froth gets worked off,” he wrote in a note to clients.
“In all likelihood, Bank of Canada rate hikes and the coming rule changes from OSFI should keep the froth from returning. Elsewhere, look for continued strength in Ottawa and Montreal, stability in Alberta, and an ongoing supply-demand struggle in Vancouver.”
This article was re-posted with permission from www.awesomehousingnews.com.
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