First National Financial LP

Residential Mortgage Quarterly Review - Q1 2019

  • First National Financial LP

Regulatory efforts to rein-in Canada’s housing market appear to be having the intended effect.

CMHC lowers the red flag

For the first time in 10 quarters Canada Mortgage and Housing Corporation has lowered the red flag it has been flying over the country’s housing market.  In its latest Housing Market Assessment CMHC eased its vulnerability rating from high to moderate for the country as a whole.

Big markets, big influencers

Once again Vancouver, Victoria, Toronto and Hamilton were the big influencers in the assessment with the agency noting that price acceleration and overvaluation have started to fall in line with economic fundamentals in those markets.  Vancouver – the country’s most expensive market – saw the greatest change.  Vulnerability due to overheating moved from moderate to low, while overvaluations shifted from high to moderate.

Price acceleration slows

Across the prairies vulnerability remains moderate, largely based on evidence of overbuilding.  Montreal, which is experiencing a real estate surge, maintains its low vulnerability rating.  But CMHC notes there is evidence of overheating.  Most of the big markets in the eastern half of the country (apart from the GTA) also ranked as low.  Overall the agency posts vulnerability due to price acceleration as low.

Realtors see stabilization

For realtors the rankings confirm what they see as a sluggish market that is being weighed down by government restrictions. 

The Canadian Real Estate Association is forecasting a 1.6% decline in home sales across the country for 2019.  This is a significant levelling-off in the association’s projections.  It had been calling for an 11% decline for all of 2018.

CREA is also forecasting price stabilization for 2019, with the national average coming in at $487,000 – down about 0.2%.  In 2018 prices fell about 4%, which was the biggest drop in almost 25 years.

British Columbia is expected to experience the greatest declines with growth in Quebec and Ontario bolstering the national averages.

Regulatory headwinds

CREA continues to point to regulation by all three levels of government as a significant headwind for residential real estate.  It says fundamentals such as demographics and the labour market remain supportive.  The Bank of Canada’s current hiatus from interest rate increases should also be helpful.

Restrained optimism

CREA’s forecast for 2020 shows more optimism but remains restrained.  The association sees sales rising by about 2% – held back by the mortgage stress test and a resumption in interest hikes.

The national average price is expected to rise just 0.8% next year, to just below $491,000 based largely on gains in Ontario and Quebec.