The annual spring buying season did not materialize in Canada this year, held at bay by the new mortgage stress test, rising interest rates and uncertainty. However, the Canadian Real Estate Association remains optimistic that there will be a market recovery through the second half of this year. At the same time, Canada Mortgage and Housing Corporation has maintained its “high” vulnerability rating on Canada’s housing market for the 8th straight quarter.
Canada Remains at High Risk
CMHC’s ratings for the first quarter of 2018 posted just one notable change from the previous reading. Winnipeg saw its risk due to overvaluation increase from low to moderate. The housing agency says the Winnipeg market continues to see price increases even though real personal disposable income has declined.
CMHC is also expressing some concern about price acceleration in certain Montreal neighbourhoods. The overall risk evaluation for the city remains low, but CMHC cautions that could change if prices continue their rapid climb. The agency warns that unjustified price growth can trigger speculative cycles that are not justified by economic fundamentals, but simply feed on themselves.
The Usual Suspects
As it has been the case throughout CMHC’s two-year, red flag period the main focus of concern remains the country’s biggest and hottest markets: Vancouver, Victoria, Toronto and Hamilton. Three of the agency’s four measures of vulnerability – overheating, overvaluation and price acceleration – are ranked as moderate to high in all of these markets.
High Risk on the Prairies
Four of Canada’s prairie markets – Calgary, Edmonton, Regina and Saskatoon – are deemed at high risk against CMHC’s 4th measure, overbuilding, adding to the country’s overall high risk rating.
What the Realtors Think
The Canadian Real Estate Association had projected a first half slowdown for 2018, citing a “pull forward” effect caused by the tougher mortgage stress test implemented in January. The market appears to have borne that out, but to an even greater degree than expected.
National sales figures for the, normally busy, spring buying season in March, April and May fell to their lowest level in nine years. The numbers for June suggest the market may be shaking off its malaise, with a 4.1% increase in sales over May. It is the first substantive increase this year.
Start of 2018 Slower than Expected
The slow start to the year, the prospect of further interest rate increases and the general uncertainty in the market have CREA adjusting its forecast. It is now projecting an 11% decline in sales, to about 460,000 units, for 2018. The price projection remains relatively stable at $499,000 – down 2.1% from 2017.
While the forecast calls for price increases in more than half of all provinces, a 1.7% decrease in Ontario (due mainly to low sales of high-priced Toronto homes) is expected to hold back the national numbers. Alberta, Saskatchewan and Newfoundland and Labrador are also expected to experience price declines ranging from 1% to nearly 3%.
Back to Normal Next Year
CREA expects to see some normalcy return to the market for 2019. It is calling for a return of the springtime surge, based on the assumption there will be more certainty among buyers and sellers. The forecast is for a modest rebound in sales to about 475,000 units, weighed-down by flagging markets in the Toronto and Vancouver areas. The national average price is predicted to rise by 3.8% to $518,000. CREA expects the ongoing prospect of rising interest rates will be a key, limiting factor in price and sales growth.