What next for the Canadian housing market?

Following the small increase in national home sales revealed by CREA Monday, the association has updated its forecast for the housing market.

Although acknowledging the strong economic and demographic fundamentals which support the housing market in most of the country, the forecast highlights the policy headwinds that are creating barriers for homebuyers.

Firstly, the mortgage stress test introduced at the start of the year which continues to pressure would-be first-time buyers; at least those who did not bring forward their purchase to before the new rules took effect.

Secondly, rising interest rates. With those that have already happened and at least one more expected before the end of 2018 with more to follow in 2019, the bar is rising for borrowers hoping to qualify for a mortgage.

These factors lead CREA to call for a 9.8% decline in sales to 462,900 for 2018. This is in line with the previous forecast in June and reflects stronger-than-expected activity in Ontario offsetting weaker sales in BC, although both are expected to post double-digit year-over-year declines.

The national average price is projected to ease to $494,900 this year, down 2.8% from 2017, reflecting fewer sales transactions in B.C. and Ontario in 2018.  

Meanwhile, home prices in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island are expected to continue rising following steadily firming market conditions in recent years.

Home prices are projected to edge down by about 1.5% in Alberta, Saskatchewan and Newfoundland and Labrador. In these provinces, particularly in the latter two, supply is historically elevated in relation to demand.

And for 2019?
CREA is forecasting national sales to rebound modestly (+2.1%) to 472,700 units but remain below annual levels recorded in 2014 through 2017.

The national average price is forecast to rebound by 2.7% to $508,400 in 2019, reflecting modest average price growth in several provinces and the return of the normal seasonal pattern for sales and average prices in Ontario where a 3.3% rise is forecast.

Quebec, New Brunswick, Nova Scotia and Prince Edward Island are expected to see rising prices next year, although restricted by interest rate hikes.

Prices are forecast to remain stable from 2018 to 2019 in Alberta, while further edging down in Saskatchewan and Newfoundland and Labrador.

Source: https://www.canadianrealestatemagazine.ca/market-update/what-next-for-the-canadian-housing-market-248144.aspx

Higher mortgage rates forecast for fourth quarter

Mortgage rates are trending higher and the prime rate will hit 3.85% in the last three months of 2018.

That’s the view of economists at British Columbia Real Estate Association who have just published their Q4 Mortgage Rate Forecast.

It calls for a 5-year qualifying rate of 5.54% and a 5-year average discounted rate of 3.65%.

Pointing to the slowdown in mortgage growth following the introduction of the stress test at the start of the year, BCREA Economics says that the combination of lower access to credit and rising interest rates has led to a significant tightening of the market.

Monetary policy is also tightening and BCREA says that, while the 5-year qualifying rate for mortgages held fairly steady in Q3, the BoC’s actions will likely lead to higher rates.

Although there are some solid reasons why the BoC could speed up its normalization of interest rates – including employment and inflation data – BCREA believes that if the economy is reaching the end of the current business cycle, the cautious increases will endure.

It forecasts the bank will increase its overnight rate to 1.75% in October, with a possible further increase in December, and more to come in 2019.

Source: https://www.canadianrealestatemagazine.ca/market-update/higher-mortgage-rates-forecast-for-fourth-quarter-248034.aspx

Canadians can't afford NOT to buy study suggests

Rising rents are making homeownership the affordable alternative according to a new report.

In a comparison of expected costs by those intending to rent and those who chose to own, Mortgage Professionals Canada’s chief economist Will Dunning concludes that ownership costs less than renting today and is, even more, cost-effective over time.

"The report demonstrates that the money Canadians are spending on monthly rent if used instead to finance a home, would be a very beneficial investment over time," explained Dunning. "The costs of owning and renting continue to rise across Canada. However, rents continue to rise over time whereas the largest cost of homeownership – the mortgage payment – typically maintains a fixed amount over a set period of time – usually for the first five years. The result is that the cost of renting will increase more rapidly than the cost of homeownership."

How much could buyers save?
By looking at the comparative costs, the report shows that, if mortgage rates remain at 3.25%, in 10 years the cost of ownership (on the net basis that takes out principal repayment) will be lower than the cost of renting for almost 98% of cases. The saving for owners vs renters would be $1,295.

If rates were to rise to 4.25% after 10 years, the cost of ownership is less than the cost of renting in 92% of case studies, with an average saving of $1,014 per month.

A rate of 5.25% would still make homebuying a lower cost option in 82% of case studies with a monthly saving of $726.

"Using conservative expectations for rental increases over time, there is a clear financial benefit of owning versus renting," commented Paul Taylor, President, and CEO of Mortgage Professionals Canada. "While recent changes to mortgage qualifying have made the barrier to entry higher, those who can qualify will be much better off in the long term. Given the economic advantages of homeownership, Mortgage Professionals Canada would recommend the government consider ways to enable more middle-class Canadians to achieve homeownership. Our collective long-term economic success may be compromised without that support."

Source: https://www.canadianrealestatemagazine.ca/market-update/canadians-cant-afford-not-to-buy-study-suggests-247917.aspx

Reaction to BoC rate hold, what next?

The decision of Bank of Canada governor Stephen Poloz to hold interest rates steady in September was no big surprise.

The markets and economists had been expecting that freeze due to inconclusive economic data and the ongoing NAFTA talks.

But what do two leading economists make of the decision and how do they see things progressing for interest rates?

“It was wise of the Bank of Canada to hold its powder dry at today's policy meeting given the continued uncertainty on the NAFTA front,” commented Dr Sherry Cooper, chief economist for Dominion Lending Centres. “An agreement on NAFTA would provide the central bank with more comfort in moving ahead with a hiking cycle that has already lifted the benchmark overnight rate four times since mid-2017.”

She notes that the BoC acknowledged that a spike in inflation (to 3%) was largely driven by air fare hikes and the CPI is expected to return to near 2% early in 2019.

However, TD Economics senior economist Brian DePratto says that a rate hike could still have been justified by the rise in inflation despite its temporary nature, but he agrees that NAFTA is the key issue that prompted the hold-steady.

“Barring a major shock, an October hike looks like a pretty safe bet, but after that the picture becomes murky. The Bank has been marking down its growth outlook to account for trade uncertainty – any resolution on the NAFTA front is thus likely to mean a stronger outlook, and by extension, a faster pace of hikes, all else equal,” DePratto said.

Dr Cooper is in agreement, although sounds a less certain tone on an October hike: “The bank reaffirmed that the economy is doing well enough to require higher interest rates in the future to achieve the inflation target. Another rate hike could come as soon as the next policy meeting on October 24th.”

Source: https://www.canadianrealestatemagazine.ca/market-update/reaction-to-boc-rate-hold-what-next-247597.aspx

What’s pot going to do to home insurance?

In less than six weeks, Canadians will be legally able to grow recreational cannabis in their homes, as well as buy, use, and possess it. But how will their insurance be affected?

In a new survey from Ratehub, an overwhelming majority of homeowners (79%) say they don’t know if their home insurance policy would cover damages relating to growing cannabis with another 20% believing that it would not.

Renters are also confused about what their insurance – and landlords – may allow.

While 28% of renters think they should have the right to smoke and grow cannabis within their rental units, most landlords don’t believe their tenants should be able to smoke (62%) or grow (58%) within their units.

Further, more than half of landlords are unsure whether their insurance policies would cover smoking or growing cannabis.

Ratehub co-founder Alyssa Furtado is calling on insurers to be upfront with Canadians and go “above and beyond” in informing them about how insurance may be affected by the legalization of cannabis.

“Given they are responsible for defining changes within the industry, they need to be more transparent about how cannabis legalization may affect Canadians’ insurance,” she says.

Source: https://www.canadianrealestatemagazine.ca/market-update/whats-pot-going-to-do-to-home-insurance-247594.aspx