The Canadian housing market won’t be reaching new highs for the foreseeable future, and that “isn’t a bad thing,” suggests an economist with one of Canada’s biggest banks.
RBC Senior Economist Robert Hogue expects relatively recent policy moves and affordability issues riddling major markets to keep a lid on home sales and prices looking ahead, much to the chagrin of those hoping for another runup.
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“This is sure to disappoint those hoping for a snapback in activity, especially out west. But it should be viewed as part of the solution to address issues of affordability and household debt in this country,” he writes in a Monthly Housing Market Update.
To tackle these issues, policymakers have been busy. Federal mortgage rules introduced in January 2018 are widely credited as having the biggest impact on the Canadian housing market, which in June saw prices climb 1.7 percent annually and activity remain flat.
The rules, which stem from the federal watchdog the Office of the Superintendent of Financial Institution’s Guideline B-20 framework, include stress testing for uninsured mortgages.
The test requires borrowers to qualify at a rate 2 percentage points above the contract rate or one that matches the Bank of Canada’s five-year benchmark, whichever of the two is higher.
It has been blamed for sidelining households who might have otherwise been able to qualify for a mortgage with a 20-percent downpayment.
But stability has come with the damper conditions, Hogue notes. And that may be just what the Canadian housing market needs.
After years of massive price increases in Toronto and Vancouver — where markets peaked in July 2017 and July 2018, respectively, according to National Bank — Canadian housing affordability was at its worst in nearly 30 years.
“Our view is that policy-makers are tackling Canada’s affordability issues by keeping these markets under tight control,” says Hogue.
“The last two months have painted the picture Canadian policymakers want to see — generally soft but stable conditions in previously overheated markets, with prices continuing to correct in Vancouver where affordability remains a big issue,” he adds.