It’s a brand new year which, for many, signals a fresh start. Can the same be true for the Canadian real estate market, following the last tumultuous 12 months?
It won't be the hottest year for sales
After all, 2018 was a year of cooling markets, stress tests, and lowered expectations. The tougher mortgage qualification rules put in place at the start of 2018 dampened activity in Toronto
and Vancouver, and have had a more profound impact on smaller cities like Calgary and Newfoundland and Labrador, which now suffer from deeper supply and demand imbalances.
The most recent analysis from the Canadian Real Estate Association reveals 2018 ended on a lower note than previously forecast, with year-over-year sales down 11.2% to 458,200 units. And it’ll be much of the same in 2019, with an anticipated 0.5% drop. Prices also softened 4.2% to an average of $488,600, and are expected to rally only 1.7% in 2019.
The national association places the blame squarely on the stress test, which requires all borrowers of new and refinancing mortgages to prove they can qualify at a rate roughly 2% higher than the one they’ll actually receive from their lender, resulting in chopped financing amounts and decreased home purchasing power.
“In 2019, home sales activity and prices are expected to be held in check by recent policy changes from different levels of government, in addition to additional interest rate increases,” CREA states in its November release.
However, in Ontario specifically, next year will usher in some improvement; while 2018 sales were on track for a 2.6% price decline – mainly due to fewer high-priced homes sold within Toronto during the typically hot spring market – there will be a small rebound in 2019, with price growth higher than that of consumer inflation.
Rising rates will take a break
A top concern for mortgage holders in 2018 was the possibility of interest rates rising from the historic lows that have been the norm since the 2008 recession. Positive economic indicators, such as stronger than expected inflation and jobs growth earlier in the year, prompted the Bank of Canada to start hiking its trend setting interest rate, with the expectation that there would be multiple upward movements throughout 2019.
The BoC’s rate is used by consumer lenders to set their own variable cost of borrowing, directly affecting those with variable-rate mortgages and lines of credit. However, the BoC’s movements also influence the bond market, upon which fixed-rate mortgage pricing is based. With both types of mortgage rates poised to increase, combined with the aforementioned stress test, mortgage borrowers were dreading yet another financial barrier to the housing market.
However, recent developments have thrown water on the BoC’s eagerness to hike rates; new trade tensions between the U.S. – Canada’s largest trading partner – and China, along with plunging prices in the oil patch, have led to a much more cautious approach from the central bank. It opted to leave rates untouched in its December announcement, and it is strongly expected by economists that, should the current climate continue, won’t be in a position to move rates until at least the spring.
Rents will get more expensive
It hasn’t been an easy time for renters, especially those vying for affordable units in Toronto and Vancouver, which have among the lowest vacancies in the world at 1.1% and 1%, respectively.
Units in the 416 have become increasingly out of reach: the average rent in 2018 for a one-bedroom unit rose 9.5% from 2017 in the third quarter of the year, according to the Toronto Real Estate Board, to $2,163.
In 2018, rents in Toronto as a whole were up 5.2% from 2017, according to the Canada Mortgage and Housing Corporation. Occupancy in the secondary rental market – units within privately-owned condos or houses, which make up the majority of the city’s rental stock – has fallen excessively low, at just 0.7%.
As over 170,000 newcomers are expected to call Toronto home
over the next few years, and the city continues to be an economic and employment stronghold, it’s anticipated the supply – demand imbalance for rentals will only worsen, both in the 416 and across the country.
"Nationally, growth in rental housing demand outpaced growth in supply which led to the decline in the national vacancy rate,” stated the CMHC in their report. “A sharp rise in international migration combined with the aging of the population and employment growth among youth, has stimulated demand for rental housing."
Penelope Graham is the Managing Editor of Zoocasa.com, a real estate website that combines online search tools and a full-service brokerage to let Canadians purchase or sell their homes faster, easier and more successfully across the nation, including Vancouver real estate, MLS listings in Toronto, and Calgary homes for sale. Home buyers and sellers can browse listings on the site, or with Zoocasa’s free iOs app.