Royal LePage Expects â€œPace of House Price Inflation in Toronto and Vancouver to Return to Earth in 2016â€
by Yvonne von Jena | January 13, 2016
In a report released today, our sister company Royal LePage announced its expectations for the Canadian housing market in 2016. Overall, it expects continued price increases in most markets, but not at the pace that has been the recent norm. Instead, the national real estate market is expected to slow later this year, principally due to the effects of a dampened economy in Western Canada and eroding affordability in Toronto and Vancouver. In the fourth quarter of 2015, Canadaâ€™s residential real estate market showed strong growth led by hot Vancouver and Toronto markets according to the Royal LePage House Price Survey (which is powered by Brookfield RPS). 2016 House Price Forecasts Phil Soper, president and chief executive officer, Royal LePage said that, â€œThe frenetic pace of our countryâ€™s largest housing markets should moderate throughout the year ahead.Â We expect that the pace of price increases in Greater Vancouver and the Greater Toronto Area â€“ where real estate appreciation has significantly outpaced job and wage growth â€“ will settle to a more sustainable, single-digit price increase trajectory.â€ Macroeconomic Factors Expected to Heavily Influence House Prices in 2016 In 2016, Royal LePage expects the price of residential real estate in Canada to be more heavily influenced by macroeconomic factors than by housing-specific variables such as tighter regulation in the mortgage industry. The Bank of Canada is expected to keep its overnight rate steady through the all-important spring market, extending the prolonged period of exceptionally low borrowing rates. While the new Federal Minister of Finance kicked off his appointment with a hike to 10% in the minimum down payment required for the portion of mortgage insurance over $500,000, Royal LePage expects this change to have a marginal effect on the overall market. â€œThe new federal government moved quickly with a policy change in the minimum down payment required to secure mortgage insurance,â€ said Soper. â€œThe clever public policy argument here is that the government-backed program, provided primarily as assistance to the first-time homebuyer, should be more expensive for people insuring very large mortgages. The change will produce an added benefit akin to a slight tap on the brake for our two most costly cities. On a nationwide basis, we expect the number of transactions that this will impact to be minimal â€“ significantly less than the initial industry reaction would lead consumers to believe.â€ The global economic picture continues to be uneven. For the most part, forecasters such as the International Monetary Fund expect worldwide growth in 2016 to be close to the modest levels attained in 2015. Asia remains a wildcard as evidenced by the recent gyrations in Chinaâ€™s stock markets. If Chinaâ€™s economy, the worldâ€™s second largest, continues to sputter, Canadaâ€™s second largest export market could reduce the quantity of goods and services that they are willing to purchase, creating drag on our economy. Offsetting the dampening effects of a troubled global economy and oil price declines, the economic rebound and hiring surge in America presents a meaningful opportunity for Canadian export growth. For Canada, export volumes to the U.S. are twenty-times larger than export volumes to China. Combined with the relatively weak Canadian dollar which makes the countryâ€™s goods and services more attractive to foreign buyers, Royal LePage expects to see expanding export activity in Ontario, British Columbia, Quebec and Manitoba. In the manufacturing sector, a recent report from Export Development Canada noted that exporters will ride the wave of surging demand in the U.S., as evidenced by vehicle sales climbing above pre-recession levels. â€œCanada will benefit more than any other country in the world from the â€˜made in Americaâ€™ recovery underway south of the border. It took seven long years, but the incredible U.S. jobs creation machine is finally running at full tilt, and those newly confident people want what we have to offer. Growing exports mean more jobs at home, and by extension, stronger Canadian consumer confidence. Combined with continued low interest rates, the countryâ€™s housing market is in a solid position to weather the impact of low commodity prices and a choppy domestic economy,â€ concluded Soper.