While many industry experts predicted that the Canadian housing market would start to warm up in May, sales and prices have remained stubbornly flat, as the effect of a new mortgage stress test continues to make itself felt.
So when can Canadians expect the market to finally adjust to the new policy? This week, economists wrote that the volatile market won’t be adjusting this summer, but that there are some benefits to be had from the current situation.
For a closer look at what was being said about the housing market this week, BuzzBuzzNews has rounded up the latest industry commentary, to keep you in the know.
Homebuyers have taken a “pass” on the spring season
That’s the verdict of RBC senior economist Robert Hogue, who noted that Canadian home resales fell to a six-month low in May, with just 436,500 seasonally adjusted units sold.
“We held the view until now that the transitory effect of the stress test implemented on January 1 would start to wane by the spring,” he writes. “Well, there was no indication of any material rebound in home resale activity through May.”
Hogue blames new mortgage rules, higher interest rates and an expansion of Vancouver’s foreign buyer tax for the market’s poor performance.
“Clearly, [these factors] continue to keep homebuyers on the sidelines,” he writes. “Not even a material rise in new listings (up 5.1 per cent) enticed them back into play.”
Volatility has become acute
Not to be outdone, TD Economics wrote that Canadian housing market volatility has become “acute” since the end of 2017, in a note released this week.
“Regulatory changes at both the national and provincial level (especially in B.C.) resulted in outsized swings in resale activity,” they write.
The changes have led to a 44 per cent quarter-over-quarter drop in home sales from Q4 2017 to Q1 2018, and a 7 per cent decline in residential investment, despite what the TD team calls “solid construction and renovation activity.”
But now could be the time to rethink some housing policies
“[Slump housing activity] is actually good news as both Vancouver and Toronto desperately need a breather,” wrote CIBC senior economist Benjamin Tal earlier this week. “But what is being done during that time-out will be crucial for the future trajectory of housing — and here we zoom in on the Ontario market in general, and the GTA market in particular.”
There are several housing policies that could be reconsidered during the current housing adjustment, according to Tal. Chief among them is Ontario’s rental control legislation, which came into effect last April. The policy has been widely condemned by economists and developers, who believe it will discourage the construction of much-needed purpose-built rental housing.
Currently, landlords are only allowed to raise rent in line with inflation. Allowing for an annual increase of 2 per cent could spur developers to create more rental properties, writes Tal.
“Many developers will tell you that the celerity of such policy and the extra 2 per cent would, in many cases, make the difference between going ahead or not, with a new project,” he writes. “That simple move could go a long way to ease the current supply pressure facing the GTA housing market.”