Photo: James Bombales
The Canadian real estate market made headlines plenty of times in 2017 — but what does next year have in store? Will housing prices and affordability continue to dominate the conversation, or will new developments emerge?
BuzzBuzzNews has rounded up predictions from industry experts for the new year, so you’ll know what to watch out for in 2018.
The market will continue to cool — for awhile, at least
The Bank of Canada hiked the overnight rate 50 basis points from its historically low 0.5 per cent in 2017, and it’s predicted to continue the trend in 2018. That means Canada’s housing market will likely continue to cool, at least for the next few months.
“We expect rising interest rates will drive the next phase of the [housing market] correction in 2018, as higher rates add to strained affordability in major markets that ultimately tamps down on homebuyer demand,” writes RBC’s economics team in a recent report.
Canada’s economy to slow, thanks to the housing market
While red hot prices in markets like Toronto and Vancouver were a considerable boost to Canada’s economy in 2017, a cooler housing market will contribute to slower economic growth in the new year.
“Economic growth is anticipated to moderate [in 2018], partly reflecting a return to a more sustainable pace of housing activity,” reads a recent report from TD senior economists Leslie Preston and Brian DePratto.
The sentiment is echoed by RBC’s economics team, who write: “After several years of consumer spending and housing activity acting as the main engines of growth, changes to regulations in the housing market and rising interest rates are setting up for a moderation in housing resales and ancillary purchases.”
Mortgage change up bad news for buyers
Much has been said about a new mortgage stress test which will come into effect on January 1. The test will require all insured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract rate plus an additional 2 per cent.
Many experts predict that the test will slow the market, as first time buyers struggle to qualify against stricter borrowing standards.
“We can expect residential investment to slow down next year after the new restrictive guidelines come into effect,” reads a recent report from Desjardins.
The report predicts that major markets in BC and Ontario will be hit hardest.
“The recent growth leaders, Ontario and British Columbia, could be particularly hard hit by the expected slowdown in the housing market,” reads the report. “As we know, Toronto and Vancouver are where the housing market grew so extensively in recent years.”
Tight markets won’t be loosening up
Despite concerns about rising interest rates and new mortgage rules, it is unlikely that prices will dip too far in Vancouver and Toronto, where demand is high and supply remains relatively low.
Toronto saw its prices balance out in the second half of 2017, after the province introduced its Fair Housing Plan, complete with a foreign buyers tax. However, many experts predict that the effect will be temporary, and may already be starting to fade. BC implemented a foreign buyers tax in the GVA in 2016. Today, prices have returned to pre-tax levels.
“Toronto’s prices are down in year-ago terms, and will probably follow the pattern observed in Vancouver where prices are recovering from the immediate aftermath of the foreign buyers tax,” writes Scotiabank VP and head of capital market economics Derek Holt.
CIBC senior economist Benjamin Tal agrees. “Without dealing with the real fundamental issues facing the GTA, these policy changes are able to provide only temporary relief,” Tal told BuzzBuzzNews. “If you look at the long term trajectory, and where prices will be, say, 10 years from now, I think they will be increasingly more and more unaffordable to the average Canadian.”