The Canadian Real Estate Association (CREA) has revised its national forecast for home sales activity for 2018 and 2019.
Many regions of the country’s economics and demographics remain supportive for housing demand, however new policies have impacted homebuyer sentiment, along with access to mortgage financing in many housing markets. Further expected interest rate increases, along with this year’s new federal mortgage stress test, are expected to limit sales activity this year and moving into 2019.
With the announcement of the new mortgage stress test last October, it was expected that many homebuyers would accelerate their purchases during the short window before it took effect this year. In reality, the response to the new policy was stronger than expected. In December 2017, seasonally adjusted national home sales swelled to the highest on record before the sharp drop seen in early 2018.
With much of 2018 already passed, the stress-test on all new mortgages continues to negatively impact home sales. National activity is on track to hit a five-year low in 2018. Although summer home sales activity in and around the GTA showed signs of recovering, this trend may be short-lived. In addition, further interest rate increases expected this year and in 2019 will continue to raise the bar that borrowers must clear to qualify for mortgage financing.
With these factors taken into account, national sales are expected to fall by 9.8 per cent to 462,900 units in 2018. The updated national forecast is relatively unchanged compared to CREA’s previous forecast, which was published in June, with stronger than expected activity in Ontario making up for weaker than expected activity in British Columbia. Both provinces are still forecast to post double-digit declines in sales activity this year and account for most of the national decrease.
Home sales in Alberta and New Brunswick have been stronger than predicted in recent months, causing an upward revision in the 2018 sales forecasts for both regions. Activity in both provinces should lessen over the rest of the year compared to summer levels.
The national average price is expected to fall 2.8 per cent year-over-year to $494,900. As per CREA’s last forecast, the national average price decline reflects fewer home sale transactions in B.C. and Ontario this year. However, the forecast has been revised lower as B.C.’s sales activity has yet to rebound.
The national average price is expected to be dragged lower by reduced sales activity in higher-priced homes, with provinces posting a smaller average price decline compared to the national result. In fact, more than half of all provinces, including B.C., are forecast to see average price gains in 2018.
The average price for a home in Ontario is expected to decline by 1.7 per cent, largely reflecting fewer higher-priced home sales in Toronto, especially during the spring, which ordinarily sees a seasonal jump in the average price but did not occur this year.
Meanwhile, home prices in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island are expected to continue climbing following steadily firming market conditions over the past few years.
Home prices in Alberta, Saskatchewan and Newfoundland and Labrador are forecast to decline by about 1.5 per cent. In these provinces, especially the latter two, supply is historically elevated in relation to demand.
In 2019, national sales are expected to rebound by 2.1 per cent to 472,700 units, but remain below annual levels recorded between 2014 and 2017. The anticipated partial recovery in sales over the second half of 2018 from deferred purchases over the first half of the year, which is already happening in Ontario, but not yet in B.C., is subsequently expected to drop off in 2019 in tandem with further expected interest rate increases.
The national average price is predicted to rebound by 2.7 per cent to $508,400 in 2019, reflecting modest average price growth in several provinces and the return of the normal seasonal pattern for sales and average prices in Ontario. In Ontario, the forecast increase in average price is 3.3 per cent, which is larger than for any other province next year. The average sale price in British Columbia is also predicted to rise but by less than the rate of consumer price inflation.
Market balance is continuing to firm in Quebec, New Brunswick, Nova Scotia and Prince Edward Island. Modest price increases are expected for these provinces in 2019, although gains should be moderated by rising interest rates. Meanwhile, prices are predicted to remain stable from 2018 to 2019 in Alberta, while further edging down in Saskatchewan and Newfoundland and Labrador.