Toronto, ON, September 2017-The national housing market in Canada looks like it is set for several years of retrenchment. Exact turning points are dif cult to predict, but the combination of restricted mortgage lending, taxes on foreign purchases in the largest metro areas, and the expectation of higher mortgage rates means that house prices are likely to experience a slowdown in the next few years, especially if speculative home purchases in Toronto and Vancouver are reduced or shut down. Another factor contributing to this change in momentum is slower real per capita income growth now that monetary policy is tightening. Moreover, affordability as measured by the median dwelling price to median family income ratio is also close to a record low, so it is hard to see house prices maintaining the same momentum as before.
Nevertheless, the combined effects of restricted mortgage lending, higher mortgage rates, and housing policy interventions by the provinces will be uneven across Canada. All regions will experience slower price growth in the years ahead, but Greater Toronto is likely to maintain moderate house price growth, while the more policy-restricted market in Vancouver will lead to prices holding steady in coming years. Slower demographics in Montreal will lead to slight declines in house prices in the short term. In other regions, slower in-migration and the relative shortage of wealth in ows, combined with housing market policy, will likely lead to at least a few subsequent years of falling house prices. In all regions though, the main policy direction will be to slow down house price growth in order to improve affordability.
*Our current forecast assume that monetary policy tightening takes place at a more or less steady pace through the next two to three years. In particular, the Bank of Canada’s two recent increases in the Overnight Target rate were already factored into the forecast. Further hikes in interest rates after this year will act to slow down house price growth even further over the next five years.
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.
RPS Real Property Solutions is a leading Canadian provider of outsourced appraisal management, mortgage-related services and real estate business intelligence to financial institutions, real estate professionals and consumers. The company’s expertise in network management and real estate valuation, together with its innovative technologies and services, has established RPS as the trusted source for residential real estate intelligence and analytics. RPS is a subsidiary of Brookfield Asset Management Inc. (NYSE: BAM) (TSX: BAM.A) (Euronext: BAMA), which is a global alternative asset manager with approximately $250 billion in assets under management, 70,000 operating employees and 700 investment professionals in over 30 countries. More information is available at www.rpsrealsolutions.com
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 36 countries. Further information is available at www.moodysanalytics.com.
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