As they have for nearly every year since the global financial crisis, economic analysts are calling once again for Canada's housing market to cool in 2017. But this year, forecasters are predicting a slowdown triggered not by deteriorating economic conditions or rising interest rates, but by the heavy hand of government policy.
Looking back, many say the sheer pace and willingness of governments – federal, provincial and local – to intervene in the housing market in 2016 has been unprecedented.
In the past 12 months Canadians have had to swallow a stunning array of housing policy changes: higher minimum down payments; a more stringent income "stress test" for prospective borrowers; a B.C. tax on foreign buyers in Metro Vancouver; stricter rules for how banks and insurers calculate the capital they have to hold against loans; several small, but important, changes to Canada Mortgage and Housing Corp.'s securitization programs; and the start of consultations with industry on a possible deductible on government-backed mortgage insurance.
At the provincial level, governments in both British Columbia and Ontario have responded to tighter federal mortgage rules with policies aimed at easing the burden on first-time buyers. In Ontario, that meant doubling the first-time buyers' land-transfer tax exemption to $4,000. In British Columbia, it meant offering interest-free loans for down payments. At the local level, Vancouver Mayor Gregor Robertson introduced a 1-per-cent tax on the city's empty homes.
"I think it's a game-changer this year," says Canadian Imperial Bank of Commerce deputy chief economist Benjamin Tal. "It's almost like a benchmark in which, when we look at the housing market five years from now, we'll say: something started in 2016," he says.
The result of all these changes is that it has likely become more difficult and expensive for home buyers heading into 2017, particularly those on the margins of affordability in the more expensive urban markets of Vancouver, Calgary and Toronto.
But no one knows exactly how that will play out. Most housing market analysts are calling for a slowdown in sales at the national level, led by a sharp drop in B.C., a softening in Ontario, and a modest rebound in Alberta and Quebec. Yet the policy maker's new-found willingness to engineer a housing market cooldown has only helped to cloud the outlook for the next year.
"There have been policy tweaks in the past, but what has taken place since early August, I'm hard-pressed to find a historical comparison or benchmark," says Royal Bank of Canada senior economist Robert Hogue.
Previous rounds of federal rule-tightening have typically been followed by interest rate cuts, which helped cushion the blow. Most economists expect the Bank of Canada to sit tight next year.
"In some ways the Bank of Canada is almost a non-factor in the Canadian housing market," says Bank of Montreal chief economist Douglas Porter. "So what is normally the most important element for the housing market forecast is actually a non-player."
Then there is the wild card in the Canadian housing market forecast: the economic policies of U.S. president-elect Donald Trump. The Republican's campaign promises for infrastructure spending, tax cuts and international trade could, if implemented, "significantly" stoke inflation in Canada, which would put an added burden on the housing market, says Royal LePage CEO Phil Soper. "Inflation is a smouldering ember that we haven't paid much attention to for a decade – and it could be roaring back," he said.
Looming large over the outlook for housing is the potential for future government intervention. Having shown they're more than willing to act to stop the rise of household debt – even if it means pushing segments of the housing market into a correction – governments may have a few more moves up their sleeve.
"I think that question's been asked of bank CEOs for the last five years and they were probably wrong in terms of their guidance," Bank of Nova Scotia chief executive officer Brian Porter told a conference call with analysts in late November when asked if he was expecting any further policy moves by government. He added, hopefully: "I think that we're pretty close to the end here."