Photo: James Bombales
Canadian home prices have cooled considerably over the past few months and, according to one economist, that’s unlikely to change any time soon.
“After the fireworks of 2016 and 2017 that propelled property values by an average of nearly 10 per cent per year, a much tamer pricing environment is in the cards for Canada’s housing market in 2018 and 2019,” writes RBC senior economist Robert Hogue, in a recent note.
Housing Market News Alerts
Sign up now for news alerts on the Canadian housing market
Hogue predicts that aggregate home prices will rise just 1.8 per cent in 2018 with a slower 0.2 per cent gain in 2019. Meanwhile, home sales will continue to underperform.
“Soft activity to date, prompted us to revise our resales forecast,” he writes. “We now project a steeper drop 11.5 per cent to 456,700 units in 2018 instead of the 4.3 per cent decline to 493,900 units we projected in May.”
That drop will be led by Ontario and BC, as both markets struggle to adjust to a new mortgage stress test introduced in January. Hogue writes that the test has had a “longer-last dampening effect on resales than we had previously assumed.”
Still, he predicts that strong economic fundamentals will mean a slight increase in resales in 2019.
“The effect will taper off over time with the market’s still-positive fundamentals—an economy running at capacity, low unemployment rates, rising incomes and rapid population growth—providing scope for a slight 1.6 per cent increase in resales in 2019,” he writes.
Finally, Hogue predicts that a rising interest environment will keep housing activity in 2019 below the 10-year average. The Bank of Canada hiked the overnight rate to 1.50 per cent in July, and is widely expected to do so again before the end of the year.