Canada Housing Market Outlook: Slower, Steadier

by Joel Bates | February 12, 2019

According to the latest RPS - Moody's Analytics House Price Forecast Quarterly Report, the outlook calls for slower, steadier growth in the Canadian housing market. Based on the most recent data, the home price forecast for single-family homes is 0.9% growth across Canada in 2019.

Over the coming year, Montréal will have moderate house price appreciation compared to the other large metro areas, but in subsequent years there will be a partial recovery, with Toronto doing somewhat better over the longer term. However, there is only a small chance that Vancouver will be able to maintain level prices given the potential overvaluation of single-family homes and condo apartments.

The British Columbia metro areas will continue to have downward pull on their home prices due to a combination of reduced affordability, increased attrition in mortgage application stress tests, and stronger than average construction relative to household formation.


Canada Housing Market, History and Baseline Forecast

Current Market Considerations


In the latest analysis, we find the combination of policy interventions helped the affordability crunch and reduced the pace of price appreciation, while reducing sales across the country providing a slightly larger hurdle to home ownership.

Of the six largest metro areas, Vancouver has had the largest slowdown, followed by Toronto. Although house prices in both metro areas remain overvalued, valuations for both metro areas are down perceptibly from their peaks. The high growth in prices in both metro areas has slowed and is thus less likely to lead to serious financial consequence.

By contrast, the Moody’s Analytics forecast model for the RPS house price indexes model shows home prices in Montréal are correctly valued, while home prices in Calgary, Edmonton, and Ottawa are potentially undervalued.


Other Key Conclusions

Condo apartments or any other construction will be swimming against the macroeconomic tide as Canada’s economy, will slow by 2020. The Bank of Canada is likely to continue tightening short-term rates through 2020, while mortgage rates will take even longer to peak. We expect the average 5-year mortgage rate to climb steadily through 2023, though its increase will slow after 2020. Consequently, residential construction will be very slow to recover back to its 2017 peak. Slower construction highlights one of the shortcomings of using monetary policy to cool down overheated housing markets.

While hardly a definite sign of recession, the upward movement in the mortgage rate is a clear sign of increasing risk to the economy, which after 2019 will reduce underlying momentum for house price appreciation.

The Moody’s Analytics baseline forecast is relatively optimistic and shows the necessarily slower appreciation that comes with trying to slow down consumer debt growth so that the debt load does not ignite with an adverse financial shock.



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