Is Policy Impacting the Housing Forecast for 2019?
The housing market has been a hot topic for a while now. And things still don’t look too bright.
Recently, The Canadian Real Estate Association (CREA) updated its forecast for home sale activity using the Multiple Listing Services (MLS) Systems of Canadian real estate Boards and Associations in 2018 and 2019.
While housing market fundamentals remain strong hugely across the country, many are struggling continually due to issues with policy.
The new mortgage stress test, which was announced in October 2017, was expected to make home buyers rush to make a purchase - as new rules were soon to come in effect in January 2018. This would have reduced transactions in the first half of 2018.
Evidence suggests that the policy response was stronger than expected, with seasonally adjusted national home sales in December 2017 having surged to the highest level ever recorded before dropping sharply in early 2018.
Actual national figures for March, April and May are typically among the most active months in any given year. Combined sales fell to a nine-year low for the three-month period. The seasonally adjusted trend suggests sales momentum has not yet begun to rally.
This year and the next, interest rates are expected to rise higher. As housing market uncertainty reduces, home sales are expected to strengthen modestly in the second half of 2018.
Taking all these factors into account, the national sales forecast has been revised downward and is now projected to decline by 11 per cent to 459,900 units this year.
The decrease reflects weaker sales in B.C. and Ontario amid the chaos of the housing market, plus heightened housing market uncertainty, provincial policy measures, provincial policy measures, high home prices, ongoing supply shortages and this year’s new mortgage stress test.
The national average price is projected to ease to $499,100 this year, which is a 2.1 per cent decline from 2017. This hasn’t changed much from CREA’s previous forecast.
Only Newfoundland and Labrador’s average price is expected to post a decline of that size, while most other provinces will see an increase. The national average price reduction reflects fewer transactions in B.C. and Ontario.
Closer home, the average price decline of - 1.7 per cent for Ontario is mostly due to fewer higher-priced home sales in Toronto. This is particularly a reflection of the spring market, which usually sees a seasonal jump in the average price but it failed to materialize this year.
Normal patterns are expected to resume in spring 2019.
Meanwhile, home prices in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island are expected to rise steadily due to the market conditions in recent years. British Columbia too, is forecast to see its average price rise in 2018.
Home prices will likely edge down in Alberta by 1 per cent, in Saskatchewan by 1.5 per cent, and by 2.9 per cent in Newfoundland and Labrador. In the latter two provinces, supply remains historically elevated in relation to demand.
National sales in 2019 are forecast to rebound to 474,800 units but remain below the annual levels from 2014 to 2017.
As interest rates continue to rise in 2019, the expected partial recovery in sales over the second half of 2018 from deferred purchases in the first half of the year in Ontario and B.C., will slowly fade the following year.
This trend might also occur in other provinces, but will most prominently take place in B.C. and Ontario, where transactions have sharply sunk over the first half of 2018 despite a supportive economic and demographic backdrop for housing demand.
In 2019, the national average price is expected to rebound by 3.8 per cent or $518,300. It essentially means that seasonal patterns (particularly the spring market surge) are expected to return.
Market balance is continuing to firm in Quebec, New Brunswick, Nova Scotia and Prince Edward Island.
Further modest price increases in these provinces are forecast in 2019, with price gains held in check by rising interest rates. Meanwhile, prices in Alberta, Saskatchewan, Manitoba and Newfoundland and Labrador are forecast to remain stable from 2018 to 2019.