Canada Housing Market Outlook: The Fundamentals Start to Pull

by Joel Bates | October 16, 2019

Canada’s housing market seems on course for a soft landing given the lack of deterioration in mortgage debt arrears so far. Nevertheless, there is a perceptible downturn in house price appreciation led by Toronto and Vancouver, though this downturn has combined with falling mortgage rates to help resales recover in the past few months. That house prices have not fallen further is due to very tight resale markets in the Ontario metro areas for single-family homes and in the Vancouver area for condo apartments.

Two new developments have led to a slight downgrading of the short-term house price forecast. First, new single-family home inventory is starting to pile up, particularly in the Prairie metro areas, which will exert some downward pull on the resale market. Second, the forecast for household incomes has been re-estimated in line with new Canadian Income Survey data for 2017, and this has led to slightly slower household income growth with resulting downward pull on house prices. The first cause may be good news, though, as a looser new-home market will help overall affordability in the short term. But beyond the next two years or so, tighter mortgage lending will pull down on demand and will continue to drag on appreciation.

Nevertheless, tighter mortgage lending is starting to have an effect, as slowing house price growth has stabilized the previous upward trend in homeownership costs and should soon start to pull down on average mortgage debt-to-income ratios, preventing any serious deterioration in mortgage debt service.


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