Home sales in Canada are expected to tumble in 2018, pulling prices lower and creating a broader drag on economic growth for the country next year, according to the Canadian Real Estate Association.
CREA released its 2018 forecast on Thursday, predicting home sales will fall by 27,000 units or 5.3 per cent in 2018 to 486,600 sales. The decline would come on top of a projected 4-per-cent national decline in sales this year.
The real estate association, which represents agents across Canada, also predicts national average home prices will drop by 1.4 per cent next year to an average of $503,100 from an expected average of $510,400 in 2017. National average home prices have not fallen in Canada on full-year basis since the start of the recession in 2008.
CREA's forecast has a significantly more negative tone than some others released recently. Earlier this week, for example, real estate firm Royal LePage predicted national home prices will rise 4.9 per cent next year, while Re/Max forecast a national price increase of 2.5 per cent in 2018.
CREA, however, anticipates greater weakness in Ontario housing in 2018 and says that will be the key driver behind the national trends. The forecast predicts the volume of home sales will fall by 10 per cent in Ontario next year on top of an almost 9-per-cent decline in 2017, leading to a 2.2-per-cent decline in average home prices in the province.
The Ontario forecast is CREA's weakest for any province in 2018 in terms of the decrease in both sales volumes and average prices.
CREA said one driver behind the weak Ontario forecast is an expected reduction in sales of higher-priced homes in the Toronto area in early 2018 compared with early 2017, which will reduce average prices as a result.
Based on research by real estate data firm Altus Group, CREA said the anticipated decline of 27,000 sales in Canada in 2018 translates into a decrease of $1.1-billion in economic activity and 12,000 fewer jobs.
CREA's weak forecast comes despite recent improvements in Ontario's market following a downturn that began after the provincial government unveiled a package of reforms in April aimed at cooling the region's housing market. The number of housing units sold in the Greater Toronto Area in November climbed by 16 per cent over October on a seasonally adjusted basis, for example, although sales were down 14 per cent compared with November of last year, CREA said.
On a national basis, homes sales climbed 3.9 per cent in November over October for the fourth consecutive month of rising sales numbers, CREA said. The national average sales price was up 2.9 per cent in November compared with the same month last year.
CREA chief economist Gregory Klump said there is positive momentum heading into the year end, but it remains to be seen whether the momentum will continue after Jan. 1, when tougher mortgage-qualification rules will take effect.
Like other forecasters, CREA anticipates new mortgage rules announced in October by Canada's banking regulator will be a key factor in cooling sales in 2018. All provinces except for Quebec and Newfoundland are likely to see sales fall because of the mortgage-rule changes, CREA said.
CREA president Andrew Peck said the pending change may have convinced some buyers to purchase in November and December before the rules take effect, which means there could be a "pull-forward" of sales that will contribute to a slump in the first half of 2018.
Many economists are forecasting a "soft landing" for the Ontario market in 2018, with the province's strong economy and growing population expected to trump the temporary impact of policy changes.
Bank of Montreal economist Robert Kavcic argues the mortgage-rule changes and interest-rate increases will keep Toronto's market growth at a more reasonable pace in 2018, compared with excessive price increases of recent years.
Toronto's supply and demand fundamentals will support the market next year, once remaining "froth" is worked out of pricing, Mr. Kavcic said in a research note on Thursday.
Bank of Nova Scotia economist Adrienne Warren predicts national price trends "should remain positive, if subdued" next year, with more than half of local markets in Canada "in balanced territory" for the year.
CREA said the new mortgage rules, coupled with anticipated further interest-rate increases, are expected to hold sales in check in Greater Vancouver and the Greater Toronto Area in 2018. The association predicts British Columbia will see a 3.7-per-cent drop in the volume of home sales next year and no change in average prices.
Quebec, however, is expected to have the highest price growth in Canada next year as Montreal's housing market continues to climb. Prices are forecast to rise 4.2 per cent in Quebec next year, CREA said, and the volume of sales is expected to climb 0.9 per cent.
Quebec is one of only two provinces expected to see any growth in sales volumes next year. Newfoundland is expected to lead the country in terms of the percentage increase in sales, with volumes expected to rise by 1.3 per cent. Average prices in Newfoundland are expected to fall 1.9 per cent next year, however.