The Mortgage Stress Test Affected Overall Sales Numbers
There were a number of policy changes that took place in 2018, all of which likely had some effect on the real estate sector in Canada. Some point to the mortgage stress test, which was initiated in January 2018, as having a major impact.
The stress test requires homebuyers to qualify for mortgages at higher rates than the contracted mortgage rate. The purpose is simple: to determine if the borrowers have the ability to continue making mortgage payments if interest rates increase.
In late 2017, some buyers kicked into overdrive as they searched for a home, in an effort to avoid having to pass the mortgage stress test at the beginning of 2018. In fact, the Canadian Real Estate Association reported more than 46,000 homes sold throughout Canada in December 2017. The following month, after stress tests were put in place, housing transactions dropped by 14%.
A Lackluster 2018 Points toward a Stronger Market in 2019
It’s true that 2018 was rather lacklustre in terms of home sales. However, there was also no major economic shock. This leads experts to believe that the Canadian real estate market is likely to remain steady, at a minimum, or even experience a slight growth in 2019.
The Canada Mortgage and Housing Corporation (CMHC) believes that price tags on properties will move in accordance with the economy. That is, so long as there is stable growth in income, jobs, and population, the housing market should move in step.
The specific prediction of the CMHC is that sales through the MLS will be lower than 500,000 in 2019, which is in line with 2017 but lower than 2016. They also believe that the average home price across the country will not hit $525,000. Of course, regional real estate markets will have differing forecasts.
Local Markets Impacted by Changing Mortgage Regulations
Taking a step closer and looking at specific housing markets throughout Canada paints a consistent picture. Toronto real estate was slower in 2018 compared to both 2017 and 2016. In fact, all of Ontario showed a slowdown in housing transactions–and flattening of sales prices–since the second quarter of 2017. This slowdown was likely a result of the new taxes imposed on foreign homebuyers in the province. The CMHC believes that the urban housing markets throughout Ontario will recover from a slump in 2018, which will be caused mainly by predicted job growth and in-migration.
They expect that B.C.’s housing market will moderate even more than it has, considering the fact that there’s been an economic contraction and more people moving out than moving in. For example, Vancouver real estate prices have been growing, but at a slower rate, since new transaction taxes were imposed on foreign buyers. In fact, there were 35% fewer Vancouver home sales in October 2018 compared to October 2017.
Calgary real estate resales were down by 9% in October 2018 compared to the year before, and the composite housing price index dropped 2.6% in October year-over-year. This was the only large housing market to experience a decline in the composite housing price index for the month of October.
Some expect real estate in the Prairies to continue to moderate, in part because of the heavy reliance on fossil fuels and other extractive industries. Others, however, believe these housing markets are actually ripe for growth.
Montreal real estate is expected to benefit from a projected boost in foreign buyers in the upcoming year, thanks to the fact that it has not joined Toronto and Vancouver in imposing taxes on foreign buyers. It is also likely that this means rental vacancy rates in Montreal are going to drop, due to a larger demand caused by a strong economy and in-migration.
Finally, the CMHC has predicted that the number of units sold and the prices of existing homes in Nova Scotia will both be on the rise. However, this will be an anomaly in Atlantic Canada, which will continue to struggle due to lower population growth.