The housing market in Canada has reached a turning point, though not into a full-blown national correction, but into an environment of decidedly slower demand growth and house price appreciation over the next few years. The new environment is due to a combination of new national mortgage lending regulations, interest rate tightening by the Bank of Canada, and province-specific regulations such as transfer taxes on foreign purchases. These policy interventions are neither arbitrary nor intended to put the housing market out of reach of purchasers. Their main objective is to prevent further deterioration in affordability and also to prevent a worsening in mortgage debt performance.
The combined effects of these interventions will be that national house price appreciation, which has been strong through 2017 despite regulatory interventions in British Columbia and Ontario, comes almost to a stop in 2018 as the combination of higher mortgage rates and restricted mortgage lending starts to take hold. Some areas will start to experience falling house prices, particularly the Prairie metro areas, which have a historically high sensitivity of house price appreciation to changes in mortgage rates and which also have had lower average house price growth than the greater Toronto and Vancouver regions. Toronto and Vancouver themselves will have substantially slower house price growth, but Montréal will be less affected given that it is not an overvalued market.
Despite the policy shock, there will be only a brief and mild national house price decline in 2018, after which house price growth will resume, albeit at a significantly slower rate. Given that previous house price growth was outpacing income growth and also starting to stretch household debt service ratios, the downward shift in house price appreciation will not be bad news.
The RPS – Moody’s Analytics House Price Forecasts are based on fully specified regional econometric models that account for both housing supply-demand dynamics and long-term influences on house prices such as unemployment and changes in mortgage rates. Updated monthly and providing a 10-year forward-time horizon, the forecasts are available for the nation overall, its ten provinces and for 33 metropolitan areas, and cover three property style categories, comprising single-family detached, condominium apartments and aggregate, in a number of scenarios: a baseline house price scenario, reflecting the most likely outcome, and six alternative scenarios.
RPS Real Property Solutions is a leading Canadian provider of outsourced appraisal management, mortgage-related services, and real estate business intelligence to financial institutions, real estate professionals, and consumers. The company’s expertise in network management and real estate valuation, together with its innovative technologies and services, has established RPS as the trusted source for residential real estate valuation services.
RPS is wholly owned by Brook eld Business Partners L.P., a public company with majority ownership by Brook eld Asset Management Inc. Brook eld Business Partners L.P. is Brook eld’s agship public company for its business services and industrial operations of its private equity group, which is co-listed on the New York and Toronto stock exchanges under the symbol BBU and BBU.UN, respectively. Brook eld Asset Management Inc. is a Canadian company with more than a 100-year history of owning and operating assets with a focus on property, renewable power, infrastructure and private equity. Brook eld is co-listed on the New York, Toronto and Euronext stock exchanges under the symbol BAM, BAM.A and BAMA, respectively. More information is available at www.rpsrealsolutions.com.
More information is available at www.rpsrealsolutions.com
Moody’s Analytics helps capital markets and risk management professionals worldwide respond to an evolving marketplace with confidence. The company offers unique tools and best practices for measuring and managing risk through expertise and experience in credit analysis, economic research and financial risk management. By providing leading-edge software, advisory services, and research, including the proprietary analysis of Moody’s Investors Service, Moody’s Analytics integrates and customizes its offerings to address specific business challenges. Moody’s Analytics is a subsidiary of Moody’s Corporation (NYSE: MCO), which reported revenue of $3.6 billion in 2016, employs approximately 11,500 people worldwide and maintains a presence in 41 countries. Further information is available at www.moodysanalytics.com.
Yvonne von Jena
Head of Innovation & Marketing