Market

A tugboat trying to turn an ocean liner — why regulation won’t keep Canadian housing prices down for long

Photo: James Bombales

Prices in some of Canada’s hottest housing markets are likely to cool during the first few months of 2018 — but don’t expect them to stay that way for long.

According to the Royal LePage Market Survey Forecast released today, recent policy changes will dampen housing prices in early 2018.

“One of the most significant regulatory interventions in the housing industry in years is the incoming OSFI mortgage financing stress test,” reads the forecast.

Announced in October, the stress test will come into effect on January 1, and will require all uninsured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract mortgage rate plus an additional 2 per cent.

“Royal LePage anticipates that the new measure will slow the housing market, particularly in the first half of 2018, as buyers adjust both their expectations and finances,” reads the report. “With a large number of existing homeowners potentially failing the test when refinancing next year, a temporary reduction in consumer confidence may further stagnate price growth as potential buyers and sellers take a ‘wait and see’ approach.”

But it’s likely to be temporary — Royal LePage CEO Phil Soper says that market conditions in Canada’s biggest cities are too tight to keep prices down for long.

“Attempting to use public policy to steer property prices in huge, rapidly growing cities like Toronto and Vancouver is like a tugboat trying to turn an ocean liner,” he writes in a statement. “Consistent, measured policy can have a positive impact. Just don’t try to turn the market on a dime or you risk sinking the ship.”

Soper says that while markets like Toronto and Vancouver aren’t at risk of a crash, they are subject to aggressive home price inflation.

“Demand from migration, alongside demand from millennials who are increasingly becoming of home buying age, will continue to outpace supply [in BC and Ontario],” reads the report.

With this in mind, GTA home prices are expected to outpace much of the rest of the country at the end of 2017. Royal LePage forecasts that the average price of a GTA home will increase 6.8 per cent to $901,392 by the end of the year.

“This will largely be driven by price appreciation in the condo market as demand for entry-level properties is expected to continue to surge,” reads the report. “The GTA’s thriving economy and growing population has been supportive of an expanding housing market and this is expected to continue throughout 2018.”

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