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The Royal Bank of Canada makes no bones about it: accurate real estate predictions don’t come easily — even for experts, and especially these days.

“Forecasting Canada’s housing market is particularly difficult at this juncture given the central role that policy is playing and likely to continue to play in the period ahead,” writes Robert Hogue, a senior economist at RBC, in a report this week.

Still, Canada’s largest bank isn’t letting that hold it back from taking another stab at it, one that calls for a national sales downturn but higher prices still.

In a downwardly revised Canadian housing market forecast, RBC is now predicting home sales will decline 11.5 per cent in 2017 after rising 4.4 per cent this year. In terms of the total number of units changing hands, that works out to 527,900 this year and 467,100 the next.

All provinces will experience declines, with BC leading the way with a projected 23.8-per-cent year-over-year decline on the horizon for 2017. Manitoba, on the other hand, will see the smallest change, an anticipated 2.7-per-cent hit on activity next year. Ontario, home to the country’s hottest major housing market, Toronto, falls somewhere in between, with a sales drop of 10.6 per cent expected.

“Overstretched affordability conditions in Canada’s most expensive markets are poised to restrain homebuyer demand — especially if longer-term interest rates rise as we expect — however, we see recent policy action as the bigger factor at play,” Hogue explains.

BC’s 15-per-cent sales tax applied to non-resident buyers of residential properties anywhere in Metro Vancouver starting August 2nd is a contributing factor — one of several — in the national decline.

“Importantly, we expect rule changes at the federal level will have a dampening effect on home buying activity across all provinces, not just for Canada’s hot markets,” he states.

Hogue is referring specifically mortgage-related regulatory measures Finance Minister Bill Morneau announced early last month.

The first, which took effect October 17th, means would-be homebuyers putting down less than 20 per cent must qualify at a higher rate when choosing a fixed-rate mortgage of five years or more. Another measure, set to take effect November 30th, will see more stringent mortgage portfolio insurance standards.

Together, RBC estimates these changes may impact about 20 per cent of all home sales in Canada.

No crash is in the cards, however, according to Hogue. “While we downgraded our housing market outlook, we remain of the view that our base case scenario would qualify as a soft landing posing little threat to the stability of the market, even in British Columbia,” he notes.

While sales cool, the aggregate price of a Canadian home will continue to climb, albeit at a slackening rate of 1.6 per cent, down from an expected 9.5 per cent this year. Or, in dollars, $441,800 this year compared to $448,900 in 2017.

Ontario, with a projected 2017 aggregate home price of $494,400, representing a year-over-year increase of 3 per cent, is poised for the greatest gain, says RBC. If the forecast holds true, the aggregate home price in BC will reach $748,700 next year, up 1.0 per cent year-over-year, the second biggest increase.

“We expect that weakening resale activity will erode sellers’ pricing power,” says Hogue in the report.

Nevertheless, RBC only expects three provinces to see outright price drops: Newfoundland and Labrador, Alberta and Saskatchewan. RBC has Newfoundland and Labrador slotted for the most substantial depreciation, with an aggregate price of $264,000, a 5.2 per cent year-over-year decline, expected.

“Our base case scenario assumes no further policy action,” writes Hogue. “We will continue to monitor housing market developments closely and stand ready to revise our outlook as necessary,” he concludes.

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