Photo: James Bombales
With a new mortgage stress test finally here and interest rate hikes on the horizon, industry experts are predicting a slow start to the year for the Canadian housing market.
But Canadians don’t seem to have gotten the memo — in fact, they haven’t been this excited about the real estate market since the Great Recession.
The most recent Bloomberg-Nanos consumer confidence index — a weekly poll of Canadian consumer confidence — hit 62.17, the highest level since 2009’s 62.92. A score over 50 indicates a positive feeling about the economy.
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More than 43 per cent of respondents said they expect housing prices to rise in the new year, up from the 10-year average of 37 per cent.
It’s a level of optimism that’s not reflected in the predictions of many economists. According to TD senior economists Leslie Preston and Brian DePratto, the first few months of 2018 will see a cooling housing market, and with it, a slowing economy.
“Economic growth is anticipated to moderate [in 2018], partly reflecting a return to a more sustainable pace of housing activity,” they write in a recent note.
The prediction is echoed by RBC economics team, in their own report. “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,” they write.
The Bank of Canada hiked the overnight rate 50 basis points from its historically low 0.5 per cent in 2017, and is predicted to continue the trend in 2018. That, plus the implementation of a new stress test for uninsured mortgage borrowers, is expected to dampen the market in coming months.
“We can expect residential investment to slow down [in 2018] after the new restrictive guidelines come into effect,” reads a recent report from Desjardins. It predicts that major markets in Ontario and BC 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.”