Canadian Housing Market Outlook for 2018

The Canadian Real Estate Market is amazingly resilient. Last year started off with a big nervous question: Will the Canadian housing market crash? In 2018, the new year started off with more signs of relieve.  Analysts across the country came out with a various prediction for the activities and pricing, but the overwhelming consensus was that the nation’s real estate market would flatten out, even in the hot Toronto and Vancouver markets. 

This was not too much of a prediction. In the summer months of 2017, activity begun to show signs of stabilizing, even when the number of listings was finally growing. This flattening out of the market was happening well before the government amendments to mortgage regulations. 

What does all this mean for real estate markets in 2018?
It means a possible return to the norm. Based on the sales-to-new listings ratio—where 50% is a balanced market—the overall Canadian market appears to be balanced, according to RBC Economics December Monthly Housing Market report. Toronto and Calgary are also in the balanced territory while Montreal and Vancouver are still leaning towards a seller’s market.

The least optimistic outlook regarding Canada’s real estate markets in 2018 comes from the Canadian Real Estate Association. CREA predicts that activity will fall 5.3% in 2018. This continued decrease in buying activity, combined with the 4% decline in activity in 2017, prompted CREA to anticipate a 1.4% drop in national average housing prices in 2018. The expected national average housing price for 2017 was $503,400.

If CREA’s prediction turns out to be true, 2018 will be the first year the national housing price will have fallen in Canada since the start of the global recession in 2008. But the impact of a slowing market will not be felt uniformly across the country. 

What does this mean for buyers?
Because of tighter mortgage lending rules, buyers simply can’t afford to buy the same house as they would have in 2017. This could mean cutting anywhere from 5% to 25% off your maximum house-price budget—although consensus shows it will mean an 18% reduction in your maximum purchase price for one in six borrowers, who put down less than 20%.

One unintended consequence of this forced fiscal responsibility is that more buyers will end up competing for cheaper properties—possibly driving up the prices of condos and townhomes, properties previously considered more affordable.

This push for more affordable housing opportunities could be provoked further as potential buyers try to get into the market before mortgage rates rise. It’s expected that the Bank of Canada will continue with incremental increases to its overnight rate in 2018. While no one anticipates discounted mortgage rates to shoot up to 6%, the posted rates will hit this mark relatively quickly. The increase in mortgage rates will further erode a buyer’s affordability prompting more buyers to act before being potentially locked out of the market.

Based on all these factors, we shouldn’t be surprised by an active spring market, particularly in the condo and townhouse market segments.