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Anticipating higher mortgage rates and fewer first-time buyers next year, the Canadian Real Estate Association (CREA) is adjusting its national housing market forecast for 2017.

The association, which represents more than 100,000 real estate professionals, expects the national average selling price of a Canadian home to edge 2.8 per cent lower to $475,900 next year.

This follows an average sale price increase of 10.5 per cent to $489,500 that CREA forecasts for this year.

CREA is also calling for a downtick in sales activity to a total of 518,900 transactions in 2017, down 3.3 per cent from this year’s projected tally.

The total for 2016, if reached, would be a new record of 536,700, representing a year-over-year increase of 6.2 per cent.

“The government’s newly tightened mortgage regulations have dampened a wide swath of housing markets, including places not targeted directly by the government’s latest regulatory measures,” stated CREA President Cliff Iverson in a statement included with November’s market data, released alongside the forecast.

In early October Finance Minister Bill Morneau revealed a number of new policy measures, including more stringent testing for the applicants of insured mortgages, a headache for some new house hunters.

These regulatory changes, which are expected to dent banks’ mortgage businesses as they eat away at the pool of potential borrowers, are expected to lead to higher interest rates, a trend that has already started to play out.

“These regulatory headwinds were not a factor at the time of CREA’s previous forecast and have resulted in downward revisions to the forecast for sales and average price in 2017,” CREA explained in its forecast.

The average price of homes sold throughout Canada in November is $489,591, an increase of 7.3 per cent from a year earlier, but transactions in some of the country’s most-active markets will start weighing down the average prices next year.

Although CREA says Ontario’s average home price should reach $535,700 this year, a 15.1-per-cent rise, next year’s gains will track around the rate of inflation, as it is also expected to in Manitoba, Quebec, New Brunswick and Nova Scotia.

Declines of that minor magnitude are on the way for Alberta, Saskatchewan, Prince Edward Island and Newfoundland and Labrador, CREA suggests.

However, the association noted prices are stabilizing in Alberta and Saskatchewan, two oil-producing provinces whose housing markets have suffered from higher unemployment in the face of lower crude prices, and the association says this recovery should persist in 2017.

The 2017 outlook for BC includes an average home price drop of 7.8 per cent — a result of fewer high-end detached home sales — though this year CREA pegs the average price for the year at $688,300, 8.1 per cent over 2015.

Ontario and BC are expected to see activity fizzle with declines of 2.7 per cent and 12.2 per cent, respectively.

“Transactions in BC and Ontario are anticipated to remain strong but fall short of this year’s record levels due to deteriorating affordability, an ongoing shortage of affordably priced listings for single-family homes and tightened mortgage regulations,” said CREA.

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