The Canadian Real Estate Association (CREA) has updated its forecast for national home sales activity for 2018 and extended the outlook to 2019.
Housing market fundamentals remain supportive in many regions of the country. By the same token, housing markets continue to face policy-related headwinds.
New mortgage rules announced in late 2017 had been expected to cause homebuyers to advance their purchase decision before the new rules came into effect in January, with the advanced purchases made in late 2017 resulting in fewer transactions in the first half of 2018. Evidence suggests the policy response was stronger than expected, with seasonally adjusted national home sales having surpassed all previous monthly records last December before dropping sharply in the first two months of 2018.
When CREA previously published its forecast in December 2017, housing markets were being affected by provincial policy measures in B.C. and Ontario, and by the stress test on mortgage applications involving down payments of less than 20 per cent. Rising interest rates and the announcement of a stress test on mortgage applications involving down payments of over 20 per cent set to take effect in January 2018 were also factors.
Since then, more provincial housing policy measures have been announced to further cool housing markets in B.C. In addition, interest rates have risen further and the stress test on mortgage applications involving down payments of over 20 per cent has come into effect.
Interest rates are widely expected to climb further this year. Higher interest rates make mortgage stress tests a more difficult hurdle for homebuyers that require mortgage financing.
Some homebuyers will likely elect to refrain from purchasing a home at this time amid heightened housing market uncertainty and to continue saving a larger down payment before purchasing, suggests the forecast. This is expected to result in lower sales in the first half of the year followed by a modest rebound in the second half of 2018 as housing market uncertainty fades.
Taking these factors into account, the national forecast for sales and average price has been lowered. National home sales activity is expected to fall by 7.1 per cent to 479,400 units in 2018. The decline reflects slower sales in B.C. and Ontario, along with heightened housing market uncertainty caused by provincial policy measures, high home prices, ongoing supply shortages and tightening mortgage stress tests as interest rates rise.
The national average price is expected to dip to $498,100 this year, down 2.3 per cent from 2017. Only Newfoundland and Labrador is expected to post a sales decline of that size, while half of all provinces see average price gains. The decline in national average price reflects fewer transactions taking place in B.C. and Ontario; it also reflects fewer sales of higher-priced homes in Vancouver and Toronto.
Home prices in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island are expected to continue to climb following years of firming market conditions.
Meanwhile, home prices are predicted to be little changed in Alberta and fall in Saskatchewan and Newfoundland and Labrador for the fourth consecutive year. In Saskatchewan and Newfoundland and Labrador, supply remains elevated in relation to demand.
In 2019, national sales are expected to rebound modestly to 496,500 units but remain below highs recorded from 2015 to 2017. The rebound reflects an expected partial recovery of sales over the second half of 2018 in Ontario and B.C. followed by a gradual slowdown of activity over 2019 as previously deferred activity comes to a close and interest rates continue to rise. This trend is also expected in other provinces but will be more noticeable in B.C. and Ontario, where transactions have fallen dramatically early this year despite a supportive economic and demographic backdrop for housing demand.
The national average price is also predicted to rebound by 3.1 per cent to $513,300 in 2019, placing it around level with the 2017 figure. The increase reflects expected modest price gains in a number of provinces and a partial rebound of sales activity in B.C. and Ontario.
In addition, forecast price gains in B.C. and Ontario in 2019 reflect an expected improvement for sales activity in Vancouver and Toronto and homes remaining in short supply relative to demand in these provinces. As market conditions continue to firm up in Quebec, New Brunswick, Nova Scotia and Prince Edward Island, these provinces are expected to see further slight price gains in 2019. Meanwhile, prices in Alberta, Saskatchewan, Manitoba and Newfoundland and Labrador are predicted to hold relatively steady from 2018 to 2019.