Taking Advantage of Real Estate Trends in 2018
According to RBC economic analysts, the better indicator of the Canadian real estate market is the number of home listings, not the number of home sales which many believe to be the benchmark of the market. The end of 2017 was highlighted by a five consecutive month increase in existing home sales, which abruptly ended with a heavy 14.5% monthly decline in home resales in January 2018, and an eight-year low 21.6% sharp decrease in new listings. New provincial mortgage underwriting regulations and a rise in the overnight banking rate to 1.25% will likely cause overall 2018 Canadian home sales to cool from its April 2017 peak. Both buyers and sellers are hesitant to enter the market, as they’re waiting for it to stabilize. RBC senior economist Robert Hogue recently noted, “the more stringent qualifying rules for uninsured mortgages will raise the ownership bar significantly for many buyers”, indicating a smaller pool for home purchasing demand by effectively regulating out the lower end of formerly qualifying potential home buyers. Hogue added, “this will raise the ownership bar even higher at a time when affordability is already stretched in some of Canada’s major markets”.
January condo and detached home sales experienced similar drops in the GTA, with economists forecasting a similar trajectory for other Canadian markets. “Demand and price trends continue to show considerable divergence across local markets and housing segments,” writes Scotiabank economist Adrienne Warren. Prices in major markets such as Vancouver / Fraser Valley have been on the rise as well as in Toronto, yet Toronto home sale numbers are cooling into stability, similarly to Calgary. Also, Vancouver and Toronto prices are heavily influenced by the ongoing home supply shortage issue, amidst concerns raised by the federal government. Meanwhile Ottawa and Montreal home prices have been accelerating upwards due to historically strong home demand. Of course, data collected in the first of twelve months of the year is not necessarily the best indicator of where real estate activity is headed in the upcoming months, according to BMO senior economist Robert Kavcic. “One has to be cautious reading too much into the January results, as the big sales decline largely reverses the run of activity pulled forward into late-2017, ahead of the new [mortgage] rules,” as Kavcic has noted.
TD economists have indicated that with the forecasted improving national job markets and overall GDP growth should support the housing market in the medium term. In general, we can expect a softening of the Canadian housing markets in 2018, mostly due to lack of supply in major markets and new stricter regulations, on the way to a strong expected 2019 housing market.