After a screeching halt sometimes comes a crash. This was the year when Canada’s housing market hit the brakes. So what will happen in 2019?

Predicting housing prices is famously difficult. And forecasting housing meltdowns like the one that nearly brought down the global financial system in 2008 may be downright impossible. For now, though, the way experts cautiously paint the future for next year is closer to the picture of a landing plane than that of a rocket ship plummeting earthward.

The Canadian Real Estate Association (CREA) sees home sales rebounding a little (2.1 per cent) next year, with home prices roughly keeping up with inflation (2.7 per cent). In Ontario, prices will likely climb a little faster (3.3 per cent) and in British Columbia, a bit more slowly.

Quebec, New Brunswick, Nova Scotia and Prince Edward Island can also expect modest price gains, while Saskatchewan and Newfoundland and Labrador will experience a small dipping. The forecast for Alberta was stable prices, although that predated the recent oil price plunge.

The big banks expect interest rates to continue to rise to between 2.25 per cent and 2.75 per cent by the end of 2019. And that will keep turning the screws on Canadians’ budgets, with more money going toward mortgage and other debt payments and less left as disposable income. Climbing rates will also continue to raise the bar for wannabe homeowners who to pass the federal mortgage stress test in order to qualify for a new mortgage.

Though a housing crisis next year isn’t impossible, U.S.-based investment giant Vanguard says the risk of a housing crisis — which they define as a severe drop in housing prices in the span of a year that could trigger a recession — continues to be low.

Canada, along with Australia, stands out both for its sky-high housing prices and its gargantuan household debt levels. Home prices have grown by 24 per cent since 1999, compared to 18 per cent in Australia, 13 per cent in the U.S. and 12 per cent in the U.K. The amount that Canadian families owe, meanwhile, is as big as this country’s GDP, a level surpassed only in Australia, where household debt is now larger the size of the economy.

But Todd Schlanger, senior investment strategist at Vanguard Investments Canada, says the Canadian economy will likely continue to grow in 2019, albeit at a slower pace than in 2018.

In Toronto, John Pasalis, president of Realosophy Realty, sees prices staying relatively flat next year.

“I don’t see a massive correction,” he told Global News.

That’s in part because the supply of new homes remains limited in the city.

“If you look at the crashes that happened in the U.S. [subprime mortgage crisis] — in Miami, Phoenix, Las Vegas — those cities were overbuilt, and that’s not what’s happening in Toronto right now.”

Rather than a housing collapse, a more likely scenario is one in which home prices stagnate as household incomes slowly catch up, Pasalis added.

Another factor that might help keep the market stable is that rents are sky-high. This could help sustain the demand from homebuyers.

“At the end of the day, people need a place to live,” he said. And, especially in the downtown core, “it ‘s not like renting is an affordable option.”

In Vancouver, realtor Steve Saretsky sees a “full-blown buyer’s market” with prices that will continue to trend lower for detached homes, condos and townhomes alike.

His advice to buyers is to be patient.

“If you’re buying a home, plan to live there or hold it for the long term,” Saretsky, of Sutton West Coast Realty, told Global News.

Real estate investors shouldn’t count on price gains to make up for negative cash flow, he added.

Home sellers should be realistic.

When sellers fixate on “old peak prices,” they usually end up having to “chase the market down,” watching their asking price gradually fall, he said.

“If you are actually keen on selling, you have to be ahead of the market,” and possibly anticipate future price declines, he added.

In general, Pasalis says it’s important to understand different neighbourhoods. When Toronto home prices started to cool off in 2017, he says he warned clients about buying in areas that had seen high rates of activity by real estate investors. His advice: Don’t buy there or offer 20 per cent less than what homes were selling for a month earlier.

Pasalis correctly predicted that neighbourhoods that had seen some of the sharpest prices increases due to speculative bets would also experience the steepest price drops.

“In a volatile market, this can be the [difference] between making a safe real estate purchase versus seeing the value of your home fall by over $200,000 in a matter of months,” he wrote in a recent blog post.

The risk of price collapses driven by investor pullback is now lower, Pasalis told Global News.

Still, neighbourhood-level dynamics remain key, Saretsky said.

Source: Erica Alini, National Online Journalist, Money/Consumer  Global News

Will it crash? Here’s what to expect from the Canadian housing market in 2019

The British Columbia Real Estate Association estimates that economic growth will remain strong enough to support a boost in sales next year after a substantial decline in 2018, according to its latest forecast.

When the dust settles at the end of this year, association chief economist Cameron Muir expects sales recorded through the Multiple Listing Service will have fallen 23 per cent to 80,000 transactions, compared with 103,768 in 2017.

“However, continuing strong performance in the economy combined with favourable demographics is expected to push home sales above their 10-year average in 2019,” Muir said Thursday in releasing the forecast.

Province wide, Muir’s forecast is for sales to rise 12 per cent to almost 90,000 units, but with a record number of new homes under construction and high levels of inventory, home prices will be more in keeping with inflation.

In Metro Vancouver, that is likely to mean sales in the region covered by the Real Estate Board of Greater Vancouver bouncing back to 31,400 transactions in 2019 and average prices edging up 2.9 per cent to almost $1.1 million.

In a still changing market, Muir’s forecast is slightly more optimistic than the Canada Mortgage and Housing Association forecast released earlier this week.

“Overall, we anticipate MLS sales to trough in 2018 and see some recovery in 2019 (and 2020),” according to the CMHC forecast, “while average prices will see a relatively flat growth profile with some risk of decline as demand and supply find a new balance.”

In the Lower Mainland regions as defined by the Fraser Valley and Greater Vancouver real estate boards, the CMHC forecast estimates that while economic conditions are still favourable, slowing population and employment growth have cut into housing demand.

The region covered by the CMHC’s forecast takes in submarkets of both the Real Estate Board of Greater Vancouver and Fraser Valley board and in its estimation, the area will likely see higher sales, but faces the likelihood that prices will decline further.

“This reality, when combined with housing policy changes from all levels of government, has resulted in an evolution of short-to-medium-term home price expectations,” according to the forecast, “compared with where they were one to two years ago.”

Source: Derrick Penner, Postmedia

https://vancouversun.com/news/local-news/real-estate-forecast-anticipates-2019-sales-to-edge-up-after-2018s-fall

In some ways it would be easier to plan if we really knew for sure whether Canadian home prices were about to fall off a cliff as so many people keep predicting.

The “Big Six” Canadian banks have now all hiked mortgage rates ahead of a Bank of Canada policy announcement on Wednesday.

Canadian Imperial Bank of Commerce, Royal Bank of Canada and Toronto-Dominion Bank raised mortgage rates last week, citing “recent activity by competitors” and “Bank of Canada rate changes” as some of the factors that go into an increase.

Bank of Nova Scotia has now hiked as well, increasing its posted five-year fixed-rate mortgage rate to 5.14 per cent from 4.99 per cent. The lender also boosted its one-year, two-year, three-year, four-year, seven-year, and 10-year fixed-rate mortgages by 20 basis points.

“Our number one focus is providing value for our customers — we manage our pricing very actively to do just that,” said Scotiabank spokesman Lukas Gerber on Monday in an email. “We use a variety of market benchmarks to set rates.”

Bank of Montreal has likewise lifted rates, raising its posted five-year, fixed-rate mortgage to 5.14 per cent from 4.99 per cent, as well as hiking its posted four-year fixed-rate 55 basis points  to 4.79 per cent, among other adjustments.

National Bank Financial analyst Gabriel Dechaine said last week in a note on the banks that approximately 80 per cent of outstanding mortgage debt is made up of fixed-rate loans, “of which we believe the majority has five-year terms.”

Montreal-based National Bank of Canada, the sixth-largest bank in the country, has also increased its posted five-year fixed rate mortgage by 15 basis points to 5.14 per cent and bumped its four-year fixed loan to 4.59 per cent from 3.89 per cent.

Laurentian Bank of Canada’s five-year fixed mortgage is also up  15 basis points to 5.14 per cent.

“These changes reflect an increase in the cost of funds and are in line with the rates offered by the market,” said Laurentian spokesperson Benjamin Cerantola in an email.

The Bank of Canada is set to make its next policy announcement on Wednesday, with the potential for an interest rate hike having increased in recent weeks thanks to strong economic data. Another rate hike could provide a boost to bank margins, according to National Bank Financial’s Dechaine.

“2017 provided not only surprise rate increases from the Bank of Canada, but a steady increase in the key five-year benchmark bond yield,” he wrote. “Both trends have contributed to an early turnaround in the trend of shrinking bank margins.”

Source: Geoff Zochodne, Financial Post/Postmedia

http://business.financialpost.com/real-estate/mortgages/big-six-have-now-all-raised-mortgage-rates-as-bank-of-canada-decision-looms

Home sales in Greater Vancouver are on a hot streak, and the professional association representing all the real estate boards in the province is bumping up its forecast for 2016, predicting escalating prices and a jump in the number of homes sold.

The British Columbia Real Estate Association forecasts unit sales in the Greater Vancouver region will increase 8.9% in 2016, from 43,145 homes sold in 2015 to 47,000 this year.

For B.C. as a whole, unit sales are forecast to increase 12.3% to 115,200 units, breaking the previous record of 106,310 units sold in 2005.

“Robust employment growth and a marked increase in migration from other provinces is buoying consumer confidence and housing demand in most regions of the province,” said BCREA chief economist Cameron Muir.

“Record housing demand has depleted inventories in many urban areas, and the resulting imbalance between supply and demand has pushed home prices considerably higher.”

The average sales price for homes in Greater Vancouver is expected to reach $1.125 million this year, up 24.6% from $902,801 in 2015. Across the province, the average price is forecast to increase 20.4% this year, from $636,600 last year to $766,600 in 2016.

This latest forecast is in sharp contrast to the BCREA’s previous release, in which it had predicted an 8.2% drop in unit sales across Greater Vancouver and a 6.2% decline across the province as a whole.

The BCREA had previously said home sales would fall because of a lack of supply. It now says a jump in new home construction is set to help meet demand.

“Waning inventories of newly completed and unoccupied units are being offset by a market increase in the number of homes under construction,” the BCREA said in a news release.

“Total housing starts in the province are forecast to climb 20% to 37,800 units this year, before edging back to 34,200 units in 2017.”

Source: Emma Crawford Hampel, Business in Vancouver
https://www.biv.com/article/2016/6/greater-vancouver-home-sales-and-prices-soar-2016-/

The short answer is ‘not yet’.

Just announced today is that the Bank of Canada is holding its main interest rate at one per cent, where it has been since September 2010.

Economists widely expect the central bank to hold its trendsetting rate steady well into next year, so Wednesday’s announcement came as no surprise.

“The bank did precisely what was expected of them today: nothing,” BMO Capital Markets chief economist Doug Porter said in a note to investors.

“If anything, the tone of the statement was slightly more dovish, noting the more moderate global backdrop, less certainty on the output gap and still relatively relaxed on the household debt front.

“The bottom line is that we are still looking at a very long period of inactivity by the bank, and may well be talking about four years of unchanged rates a year from now.”

That wait-and-see approach would appear to suit Bank of Canada governor Stephen Poloz just fine. He has been on the job since early June and shows no sign of breaking from the monetary policies of his predecessor, Mark Carney, who took up a new post this summer as head of the Bank of England.

“Add it all up and this is a central bank that believes that growth will pick up in 2014 and that will eventually require higher rates, but which is happy to sit on the sidelines and wait for substantial proof such an acceleration is underway before raising rates,” CIBC World Markets economist Avery Shenfeld said in an investors’ note.

“We still look for the first hike in early 2015, with some risk of a move late in 2014 if there are upside surprises to our forecast.”

In the explanatory note to Wednesday’s announcement, the Bank of Canada said it intends no changes as long as considerable slack remains in the economy, inflation remains muted and household finances continue to improve.

Sluggish exports and business investment have slowed the country’s economic growth, the bank said.

“Uncertain global economic conditions appear to be delaying the anticipated rotation of demand in Canada towards exports and investment.”

To underscore that point, new figures Wednesday from Statistics Canada showed the country’s exports fell to $39.2 billion in July, down 0.6 per cent from the month before.

At the same time, imports grew slightly, to push the country’s merchandise trade deficit with the world to $931 million in July from $460 million in June.

Meanwhile, the Bank of Canada noted the housing sector has been slightly stronger than anticipated, while household credit has continued to slow and mortgage interest rates are higher, the bank added, all of which point to “a continued constructive evolution of household imbalances.”

The bank also said the global economy has less momentum than anticipated.

“In Europe, there are early signs of a recovery and Japan’s situation remains promising,” it said.

“In a number of emerging market economies, financial volatility has increased, adding uncertainty to growth prospects, although China continues to grow at a solid pace.”

While commodity prices have been relatively stable, the bank says geopolitical tensions — which presumably include the bloody conflict in Syria and the continued unrest in Egypt — are raising the global price of oil.

The bank took a slightly dimmer view than it has previously of short-term economic growth in the United States, said RBC assistant chief economist Dawn Desjardins.

“While today’s statement incorporated a slightly less optimistic view of the near-term outlook for U.S. growth and acknowledged that in turn, a firming in Canadian export and business investment was evolving slower than projected, the main thresholds required for the bank to start to reduce the amount of stimulus remained intact,” she wrote in an investors’ note.

The bank’s next rate announcement is scheduled for Oct. 23.

Source: Steve Rennie, The Canadian Press

The Bank of Canada is keeping its trendsetting interest rate anchored at one per cent for the remainder of the year and sending a message that it still believes the cost of borrowing in Canada will go up at some point in the future.

The decision by the central bank’s policy setting panel was in line with the expectations of markets and economists, who had given only low odds to governor Mark Carney removing a mild bias towards raising rates sometime.

Canada’s dollar gained strength after the announcement. It was up 0.19 of a cent to 100.7 cents US — slightly higher than just prior to the central bank’s announcement.

The bank’s statement Tuesday suggests it is looking through the disappointing third quarter result as a temporary aberration.

Last week, Statistics Canada reported the country’s gross domestic product output had slowed to 0.6 per cent — about half what the bank had predicted in October, and the weakest result in more than a year.

The bank’s statement Tuesday said that “economic activity in the third quarter was weak, owing in part to transitory disruptions in the energy sector” — referring to some maintenance shutdowns.

“Although underlying momentum appears slightly softer than previously anticipated, the pace of economic growth is expected to pick up through 2013. The expansion is expected to be driven mainly by growth in consumption and business investment, reflecting very stimulative domestic financial conditions.”

Tying improved conditions to 2013 suggests governor Carney, who has announced his intention to step down in June to take charge of the Bank of England, now realizes the economy is unlikely to live up to his 2.5 per cent hopes in the current fourth quarter as well.

In a bit of a surprise, Carney says he is not as yet convinced the recent cooling in housing activity in Canada, and slowdown in credit accumulation, represents a fundamental shift.

On Monday, Finance Minister Jim Flaherty said he was pleased housing was moderating and that Canadians were starting to pay off debt, a shift in the credit and mortgage market he attributed in part to his decision to tighten borrowing rules in July.

Carney says, however: “It is too early … to determine whether the moderation in housing activity and credit will be sustained.”

That is likely because the bank expects to keep interest rates, and as a result borrowing costs, at historic lows for likely another year.

Part of what has Carney in a holding pattern, both in terms of rates and his language, is that he does not know the outcome of the so-called fiscal cliff negotiations in Washington. Canadian policy-makers say if no deal is reached in the next month to extend tax cuts and program spending, the U.S. economy could take a battering amounting to about four percentage GDP points next year, sufficient to send it and likely Canada back into recession.

As it is, Carney said the uncertainty over whether Washington will be able to avoid figuratively going over the cliff is already impacting the economy.

Otherwise, not much has changed in the past month or so, the bank says. Europe is still in recession, the U.S. is recovering but at a gradual pace and Chinese growth appears to be stabilizing. If there is good news for Canada in all this, it’s that commodity prices have remained elevated, which helps the country’s terms of trade.

For many economists, those conditions might warrant the central bank jettisoning its pretence that it will raise rates “over time,” and acknowledge a rate cut may equally be in the offing in the next year or so.

But Bank of Montreal economist Doug Porter said in a note Tuesday morning that Carney will want to await the results of the fiscal cliff talks in Washington, and is holding his fire — if he has any to shoot — until the announcement date on Jan. 23 when he knows better the situation.

Tuesday’s decision was the 18th consecutive time Carney has kept the policy rate at one per cent, comprising over two years, the longest stretch of stability since the 1950s.

Source: Julian Beltrame, The Canadian Press