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Canada’s seemingly unstoppable surge in housing sales and price growth may slow down soon according to a new report from RBC Economics.
“Strained affordability” and rising interest rates are expected to cool down sales in the market in 2015 while prices will decrease substantially.
While resales will still see an increase of 2.1 per cent to 467,200 units in 2014, driven by the hot activity for the first part of the year and low mortgage rates, in 2015, the bank expects sales to decline by 0.9 per cent to 463,100. Price growth should moderate to a 1.1 per cent increase in 2015 after seeing a 4.3 per cent bump this year.
The reason? The low, low interest rates Canadians have been enjoying for years are unsustainable and longer term rates will begin to rise as the Bank of Canada tightens up conditions in 2015. Affordability in tight markets, plus rising interest rates, will make home ownership harder to reach, even if there’s continued growth in household income.
However, RBC doesn’t get too bleak about the state of the housing market, careful to call it a cooling and dispelling the idea that the country is headed for a crash. And some local markets will weather the changes better than others. Alberta and Atlantic Canada should escape the decline in sales seen in the rest of the country
For resales, British Columbia is expected to see the biggest drop of 2.3 per cent thanks in large part to high prices in Vancouver. Ontario follows with a 1.3 per cent slump predicted for 2015, thanks to the high-flying Toronto market.
Once again, Atlantic Canada will buck the trend with RBC predicting the East Coast will escape the marked slowdown in the rate of appreciation in 2015. Quebec should see a slight decline in prices next year due to a rise in supply, mostly fuelled by condos (in July, Montreal recorded its 47th month in a row for a year-over-year rise in active listings). Prices in BC and Ontario are also expected to be much more moderate and Alberta will still see price increases.
For more info, check out RBC’s tables below: