The Canada Mortgage and Housing Corporation (CMHC) is forecasting the nation’s real estate market will “moderate,” beginning this quarter and continuing through 2017.
In its 2015 Housing Market Outlook report published today, the crown corporation outlined a number of factors that it expects will have a dampening effect on real estate activity.
“In 2015, increased housing market activity in provinces like Ontario and British Columbia — provinces that have benefitted from declining energy prices, a lower Canadian dollar and continued low mortgage rates — offset slowdowns in oil-producing provinces like Alberta,” said Bob Dugan, CMHC’s Chief Economist, in a statement. “We expect, however, that this counterbalancing effect will decrease over time.”
One factor that will have a moderating effect is the number of completed but unsold units, which CMHC says has been growing for more than a decade. “As the stock of unsold properties grows, builders are expected to channel the demand for new housing towards existing inventories, modestly restraining the pace of new home construction over the forecast horizon,” the report said.
Interest rates are another factor to look out for. Right now the key interest rate is at .5 per cent following two Bank of Canada rate cuts this year. But CMHC expects to see interest rates climb before the end of 2017, no doubt making mortgages less attractive and more difficult for some to qualify.
Further, prohibitively high home prices will play a part in cooling activity. So will vacancy rates for purpose-built rental units, according to CMHC. As supply outpaces demand for rental units, the crown corporation expects to see a decline in multi-unit purpose-built rental starts.
Accordingly, CMHC predicts starts for all housing types will hit 186,900 units in 2015 before dropping to 178,150 next year and 173,650 units in 2017.
CMHC is calling for single-detached housing starts to clock in somewhere in the range of 61,000 and 78,000 units in 2016 and 56,000 and 74,000 the following year. Rising prices for new single-detached homes will push more people to look to cheaper housing types, such as multi-unit dwellings, CMHC said in the report.
Groundbreaking for this housing type is expected to increase for 2015 but slow in the coming years, partly due to CMHC predicts a multi-unit housing starts to range from 89,000 and 129,000 units next year and 88,000 and 130,000 units in 2017.
In addition to eyeing cheaper multi-unit dwellings, some buyers will turn to the existing-home market as well. CMHC forecasts 494,700 units will be sold through multiple listing services this year. The crown corporation expects sales volume to decline to 479,500 next year and 476,000 in 2017.
CMHC is predicting the average price of a home sold through the Multiple Listing Service to reach $437,700 this year, a 7.2 per cent increase over 2014.
Looking further ahead, CMHC expects the average home price to reach $443,300 in 2016, up 1.3 per cent from the year before, and $449,600 in 2017, a 1.4 per cent year-over-year increase.