Skip to main content
business briefing

Briefing highlights

  • Canadian house price forecast
  • A Legault-Ford chat I’d love to hear
  • Markets at a glance
  • Aston Martin starts trading on bumpy note
  • Ottawa moves on Trans Mountain
  • Our view of the U.S.

The big chill

New forecasts suggest it’s “time for slower price growth” in Canadian housing markets.

Indeed, Moody’s Analytics and RPS Real Property Solutions have cut their five-year projections for many of the 33 cities studied from earlier forecasts in May.

The predictions from Moody’s Analytics, the sister company of the credit rating agency, which are based on RPS data, indicate federal and provincial policy makers have pulled off what they set out to do when they brought in measures to tame bubbly markets such as those in Toronto and Vancouver.

They also come amid fresh numbers that show the Vancouver-area market still struggling after British Columbia imposed an additional tax on foreign buyers of local real estate in 2016 and new federal mortgage-qualification rules were introduced lastJjanuary.

At the same time, interest rates are rising, and are expected to continue to do so, further pressuring demand in what had, until recently, been unstoppable housing markets.

“Two macroeconomic projections now dominate housing markets in Canada,” said Moody’s economist Andrew Carbacho-Burgos.

“The first is that the [Bank of Canada] will continue to tighten short-term interest rates through 2020 in order to head off inflation and also main­tain the value of the Canadian dollar rela­tive to its U.S. counterpart,” he added in his report released today, titled “Canada housing market outlook: Time for slower price growth.”

“With some lag, monetary tightening will pull up mortgage rates. The five-year mortgage rate is now at about 4.4 per cent after bottoming out at 3.6 per cent in mid-2017; the Moody’s Analytics baseline projection is that it will continue to increase until it levels off at about 6 per cent by late 2020.”

Here’s what Moody’s expects over the course of five years:

Average annualized projected single-family house price growth, per cent, 2018Q2-2023Q2

May 2018 forecast August 2018 forecast
Canada 3 1.5
Kelowna 2.9 3.5
Guelph 3.1 3
Saskatoon 4.5 2.9
Edmonton 5.3 2.8
Montréal 4.3 2.6
Vancouver 3.9 2.4
Barrie 2.3 2.3
St. John's 2.4 2.3
Ottawa-Gatineau 3.4 2.2
Halifax 4.3 2
Abbotsford 1.4 1.8
Oshawa 3.1 1.8
Victoria 2.9 1.6
Sherbrooke 3.7 1.6
Moncton -2 1.5
Toronto 2.9 1.3
Greater Sudbury -1.2 1.2
Québec 2.9 1.1
Saint John -1.5 1
Trois-Rivières -1.3 0.9
London 1.9 0.9
Winnipeg 2.4 0.6
Peterborough -0.5 0.6
Saguenay -1.6 0.5
Kitchener 1.7 0.3
Brantford -0.2 0.2
Kingston 0.5 0.2
Hamilton 1.6 0.1
St. Catharines-Niagara 1.6 0
Windsor 2.1 -0.3
Calgary 3.2 -0.4
Thunder Bay -1 -0.4
Regina 1.8 -0.7

Source: RPS, Moody's Analytics

There are other interesting tidbits in the report along with projections, these based on single-family homes:

1: Most Ontario cities “are still significantly overvalued, but this overvaluation has, on average, started to decrease.”

2: Toronto is overpriced to the tune of 51 per cent, compared to 53 per cent in May. Others that have come down even more sharply are the Ontario centres of Barrie, Guelph and Brantford.

3: The overpriced Vancouver market has also cooled off, but overvaluation still tops 40 per cent.

4: Montreal’s market is undervalued, but by less than 4 per cent.

5: Edmonton remains “the most undervalued metro area” in the country, by about 20 per cent, but it should see a faster pace of price growth after mortgage rate hikes end “thanks to a combination of reduced listings and increased opportunistic purchases.”

6: Saskatoon and most Atlantic cities are “moderately undervalued.”

“The national housing market still has a long way to go before it regains the level of affordabil­ity it had before 2015, when prices in Toronto and Vancouver took off, but has now taken the first steps to do so,” Mr. Carbacho-Burgos said.

“The important points are, first, that there is no serious projected house price correction,” he added.

“Second, median family income growth will have a good chance of keeping up with and even outpacing house prices in coming years, improving affordability. Third, the lack of a significant house price decline will prevent mortgage debt performance from deteriorating, espe­cially after 2020, when mortgage rates level off.”

But along with that came a few notable warnings. Among them:

1: “Given that most of the house price increases took place in Toronto and Vancouver, there is still the downside risk that higher mortgage rates and the borrower stress tests could push down demand in the Atlantic and Prairie provinces, leading to a full house price correction and a perceptible drop in sales in these regions.”

2: “The main downside risk now is that the measures taken to stabilize housing affordability and mortgage credit quality may prove too strong and may precipitate not just a house price correction, but also an extended decline in sales and possibly a reduction in homeownership. However, the data for July and August indicate that home sales and house price growth have started to rally, so it is too soon to be pessimistic.”

3: While financing is showing little sign of stress, it is “starting to show the first looming danger signs.” Mortgage delinquency rates are at their best since the early 1990s, though those in Alberta, Saskatchewan and eastern Canada are notably above the national average.

“More important, the slow growth of income relative to house prices has led to a steady increase in the ratio of mortgage debt service to disposable income over the past 15 years, and this ratio is likely to keep increasing before the [Bank of Canada] finishes tightening interest rates,” Mr. Carbacho-Burgos said of that last part.

“Although it is possible to disagree over the merits of the new mortgage lending stress tests, the move to make mortgage lending more stringent is not surprising, given this 15-year trend.”

Vancouver, of course, is unique in Canada, with numbers released Tuesday showing a sales plunge of 43.5 per cent in September from a year earlier.

That’s “the steepest decline since the financial crisis and about 35 per cent below typical September activity seen over the past decade,” said Bank of Montreal senior economist Robert Kavcic.

“All the while, new listings jumped strongly in the month. To put it lightly, the market continues to struggle with past policy measures and higher interest rates. Indeed, prices continue to fade.”

The benchmark price is up, but just slightly above 2 per cent from a year earlier, while the cost of a detached home is down 4.5 per cent.

“We would not be holding our breath for a quick rebound in this market,” Mr. Kavcic said.

And, as The Globe and Mail’s Janet McFarland reports, Toronto’s housing market chalked up a modest sales gain in September after two much stronger months.

Sales climbed 1.9 per cent from a year earlier, as average prices gained 2.9 per cent in the same period, though dipped 0.5 per cent from August, according to Toronto Real Estate Board numbers released today.

“Looks like the whole market is balancing out about as well as policy makers could have hoped,” Mr. Kavcic said of the Toronto report.

“This could set us up for a period of price stability as solid demographic and job fundamentals are countered by rising interest rates.”

Separately, Mr. Kavcic’s colleague, BMO chief economist Douglas Porter, took a run through the latest Canadian credit numbers, noting they continue to show a slower pace of borrowing.

“The slowdown in credit – most notably, overall mortgages – syncs well with the broader cooling in housing market activity,” Mr. Porter said, citing the fact that the rise in total household borrowing eased in August to 3.7 per cent from a year earlier, while disposable income eclipsed that, at 3.9 per cent.

“The biggest chill has been in mortgage growth (not surprisingly), which has softened to a 3.6-per-cent year over-year clip from an average growth rate of about 6 per cent in the past two years,” he added.

“We are on the cusp of seeing the slowest growth in mortgage balances outstanding since the early 1980s.”

Read more

A chat I’d love to hear

Thanks for calling to congratulate me, Doug, because I’ve got a question for you: Did anyone complain when you threatened to use the notwithstanding clause?

Open this photo in gallery:

Photo illustration

Read more

Markets at a glance

Read more

Ottawa moves on Trans Mountain

The federal government has appointed former Supreme Court of Canada Justice Frank Iacobucci to oversee First Nations consultations to restart the Trans Mountain expansion project, The Globe and Mail’s Shawn McCarthy reports.

Natural Resources Minister Amarjeet Sohi said today the government will not appeal the Federal Court of Appeal decision quashing its approval of the online expansion project.

Read more

Our view of the U.S.

“These days, Canadians aren’t big fans of the U.S.,” The Globe and Mail’s Matt Lundy writes, having run through and charted the latest Pew Research Center polling.

The survey was completed in August, at the height of the angst over trade talks with the U.S., so you can just imagine what it suggests.

Read More

More news
Inside the Market
In case you missed it

Follow related authors and topics

Authors and topics you follow will be added to your personal news feed in Following.

Interact with The Globe