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Ontario’s Fair Housing Plan has spurred one of the biggest Canadian banks to downgrade its home sales forecast for the province’s real estate market.
“Our view is that the introduction of Ontario’s Fair Housing Plan will be a turning point for the provincial market,” writes RBC Senior Economist Robert Hogue in this month’s Canadian Housing Market Forecast Update.
The 16-move plan, which includes expanded rent control for the entire province and a tax of 15 per cent on non-resident homebuyers, was announced in April and not factored into RBC’s previous forecast, Hogue explains.
RBC now expects home sales across the province to total 228,900 this year, down 5.7 per cent from 2016’s tally. In RBC’s forecast, this will be followed by 213,000 transactions next year, an annual decline of 6.9 per cent.
In the previous two years, Ontario home sales have posted gains of 9.5 per cent.
Ontario’s Fair Housing Plan, while potentially providing a headwind for six to nine months in RBC’s estimate, is not the only reason RBC downwardly adjusted its outlook.
“Rising interest rates and stretched affordability will become increasingly restraining forces once the market has adjusted to policy changes,” writes Hogue.
RBC has joined the growing chorus of Big Six banks expecting the Bank of Canada to hike its overnight rate, a key influencer of mortgage rates in the country, before this year’s end. National Bank and BMO are among the others predicting a hike.
Together with the near-term effects of Ontario’s Fair Housing Plan, an environment of higher interest rates should still lead to a “soft landing” for the Canadian housing market, suggests RBC.
The scenario has been the bank’s “base case” for some time.
Looking forward, RBC’s pricing forecast for Ontario this year has been upgraded, but that is due to an earlier spike this year, rather than recent price performances.
“We project that part of this spike will be reversed in the coming months, thereby setting prices on a much more moderately rising trend next year,” writes Hogue.
The average selling price of an Ontario home is anticipated to finish the year at $564,400, representing an annual increase of 14 per cent — up from an earlier call for gains of 9.3 per cent — before slowing to year-over-year growth of just 1 per cent next year.
