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Canada Housing Market Outlook: A Needed Pause in Demand

As reported in today’s RPS - Moody's Analytics Housing Market Outlook, detached single-family home prices are expected to grow by 1.5% across Canada in the coming four quarters. Andres Carbacho-Burgos, Lead Housing Economist at Moody’s Analytics and author of the report, notes, “The current cooling of the housing market is not really bad news but should be seen more as a necessary consequence of housing market policy interventions.”

Outlook:

• Moody’s Analytics forecasts that average annualized house price appreciation over the coming five-year period increases slightly to 2.2%  
  • With the direct and indirect effects of monetary tightening, house price appreciation slows down in 2020, goes briefly negative in 2021, and only recovers in the following years.

• Policy interventions are now also moving to directly affect affordability as opposed to slowing price growth by decreasing demand.
• The shared equity mortgages proposed in the new federal budget are unlikely to have a significant effect in Vancouver and Toronto, where median home prices are too large to make down payments affordable for a large share of first-time homebuyers even with the help of these measures but could help first-time buyers over the hump in the Prairie and Atlantic provinces, where house prices are much lower. These measures are not factored into the current forecast.
• Given rate hikes and the current increase in unsold inventory, residential construction will also pull back, with annualized housing starts dipping below 160,000 by the end of 2022.
• Regional trends:
• Montréal is expected to have moderate house price appreciation compared to the other large metro areas.
• Toronto’s house prices are projected to begin recovery from 2020 onwards.
• House prices in Vancouver are likely to fall through 2021 due to current overvaluation.

Potential risks:

• The main risk to the current house price outlook is still derived from monetary policy tightening.
  • With the average five-year mortgage rate projected to go up by a full percentage point over the next two years, it is inevitable that there will be some increase in the percentage of first mortgages in arrears.
• There also remains the risk of Canada’s larger than average vulnerability to global oil price shocks.
  • The income forecast in a low oil price scenario hits the Prairie provinces harder in particular, and by extension house prices would suffer.
• The slowdown in sales and in residential construction has not yet slowed job or income growth in the economy, but such pullback is a substantial risk if home sales do not start climbing back after their previous two-year decline.

Read the Full Report here 

About the RPS- Moody's Analytics House Price Forecasts 

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.

About RPS Real Property Solutions

RPS Real Property Solutions is a leading Canadian provider of outsourced real estate solutions including property valuations, business intelligence and mortgage-related services. We partner with financial institutions, mortgage professionals, real estate professionals, government agencies and economic research firms to help them make informed decisions with confidence.

Our expertise in providing solutions for property valuations, data-driven risk management tools, market trending and insights, consulting services has established RPS as the strategic partner for real solutions to real property challenges.

About Moody's Analytics

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.

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