The Canadian Real Estate Association (CREA) has updated its housing market forecast for sales activity in 2017 and 2018.
Housing market trends continue to differ considerably among regions along four general themes: British Columbia, the Greater Golden Horseshoe, provinces that are dependent on oil and natural resources, and everywhere else.
Ontario home sales have picked up after the lows reached this past summer due to sales trends in the Greater Golden Horseshoe, but will remain well below the peak reached earlier this year. Recently-announced changes to mortgage regulations for 2018 may be motivating some home buyers to make purchases now, before the new rules come into effect in January.
In British Columbia, sales activity has improved. This is due to rising activity in the Fraser Valley and on Vancouver Island, causing home sales in the province to settle midway between the highs reached in early 2016 and the lows in late 2016.
In Alberta, Saskatchewan and Newfoundland and Labrador, all natural resource-intensive provinces, sales activity is still low amid ample supply. As a result, average prices have leveled off in Alberta and lessened in Saskatchewan and Newfoundland and Labrador.
In Manitoba, Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island, sales activity has been steadily improving. Along with lowered supply, housing markets in these regions have become more solid, and average prices have been increasing.
CREA’s previous forecast, which was published in September, identified changes to mortgage rules as a key downside risk. When tighter mortgage regulations for 2018 were announced, this prediction proved to be accurate. The new rules make it more difficult for potential home buyers with more than a 20 per cent down payment to qualify for a mortgage, among other things. According to the CREA, the vast majority of Canadian mortgages are low-ratio mortgages.
Recent Bank of Canada research suggests that once tightened mortgage rules come into effect, they will lead to reduced sales activity in housing markets across the country, especially in and around Toronto and Vancouver. In addition, with some home buyers likely to make a home purchase before these new rules come into effect next year, home sales may suffer in the first half of 2018 as a result. Meanwhile, other potential buyers are expected to delay their purchase in order to save up a larger down payment before purchasing, which is anticipated to create a modest improvement in sales activity in the second half of 2018. These factors have caused CREA to narrow its forecast decline in sales activity in 2017 and revise its sales forecast downward for 2018.
The predicted decline in home sales activity in the first half of 2018 due to decreased housing affordability from tighter mortgage regulations may be lessened by a number of factors. Some buyers may qualify for a smaller mortgage by purchasing a lower-priced home, while others may choose to lengthen the amortization period when financing their home purchase.
National sales activity is expected to fall by four per cent to 513,900 units by the end of 2017. The majority of this decline reflects declining activity in Ontario, where sales fell sharply over the spring and summer following the announcement of the province’s Fair Housing Plan in April. Although British Columbia is forecast to record nearly 9,000 fewer sales in 2017, this decline will be almost completely offset by higher sales activity in Quebec and Alberta.
The national average price of a home is expected to reach $510,400 this year, an increase of 4.2 per cent compared to 2016. In recent years, average home prices have been heavily skewed by large swings in British Columbia and Ontario sales, especially for higher-priced single family homes.
Meanwhile, home prices in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island have been climbing following years of firming market conditions. On the other end of the spectrum, home prices remained relatively level or eased slightly in Alberta, Saskatchewan and Newfoundland and Labrador.
In 2018, national sales transactions are projected to fall 5.3 per cent to 486,600 year-over-year, which equals more than 27,000 transactions. This is a downward revision of about 8,500 sales from CREA’s previous housing market forecast.
The overwhelming majority of the expected decline in sales next year is due to a decline in Ontario sales, with activity projected to remain well below the record levels seen in early 2017. CREA expects the new mortgage rules to lower home sales in 2018 in all provinces except Quebec and Newfoundland and Labrador.
Based on research by Altus Group, the expected annual decline of more than 27,000 sales from 2017 to 2018 translates to a decrease of $1.1 billion in economic activity and nearly 12,000 fewer jobs.
The national average price is predicted to fall 1.4 per cent to $503,100 in 2018, largely due to a record number of higher-priced home sales in and around Toronto in the first half of 2017 that is not expected to repeat in 2018.
New mortgage rules and further interest rate increases are expected to further restrain sales in Greater Vancouver and Greater Toronto. As a result, the average price of a home is projected to hold steady in British Columbia in 2018, and decline by 2.2 per cent in Ontario.
In an extension of current trends, the average price of a home is expected to climb in Quebec, New Brunswick and Nova Scotia next year. However, price gains in 2018 will be restrained in all markets by tougher mortgage qualification criteria for low-ratio mortgages, which will impact higher-end home sales activity.
Keeping with 2017 trends, average prices in Alberta, Saskatchewan and Newfoundland and Labrador are expected to either remain level or edge back slightly in 2018.
