What Will the New Year Bring? Housing Market Predictions for 2019

Happy New Year!

With 2019 in full swing, we’re looking forward to what the year might bring – particularly as it relates to the Canadian housing market.

2018 saw many sweeping changes that had a lasting effect, including new Canadian mortgage rules introducing stress testing for uninsured mortgages and stricter mortgage lending guidelines that came into effect on January 1, 2018, and increased interest rates.

Here’s what could be on the horizon for 2019:

Interest rates will increase more.

In 2018, Canadian interest rates rose from 1% to 1.75%. During the final Bank of Canada (BOC) announcement of 2018, on December 4, rates stayed at 1.75% and the BOC stated that further hikes would be determined based on the Canadian economy, household debt, and more.

Economists are speculating that rates could reach as high as 2.25% or even 2.5% in 2019.

However, these increases will depend on many factors in the Canadian economy, particularly oil prices and the global trade economy, which could slow increases down.

New MICAT regulations in effect.

A new Mortgage Insurer Capital Adequacy Test (MICAT) came into effect on January 1, 2019. While the change isn’t quite as wide-reaching as the B-20 regulations of 2018, it could have an effect on mortgage insurance prices.

According to the Office of the Superintendent of Financial Institutions (OSFI), the new guideline “consolidates OSFI’s current capital requirements for mortgage insurers into a single document and simplifies the calculation of insurance risk, streamlines the requirements for single-family residential mortgages, includes accommodations for IFRS 16 – Leases, and specifies credit risk factors for securitized assets.”

House prices may stabilize slightly.

Home price growth slowed in 2018, especially in urban centres like Toronto and Vancouver. Many months saw unusual declines, according to the Teranet-National Bank House Price Index.

In December 2018, National Bank Senior Economist Marc Pinsonneault wrote:

“Home price weakness in some major metropolitan areas is evidenced by a second consecutive decline in the national Composite Index. In the most expensive markets, new mortgage qualification rules and the rise in interest rates have cooled demand significantly. For instance, in Vancouver, November was a fourth month in a row without a rise in home prices, for a cumulative drop of 1.8%. In Toronto, prices declined over the last three months, for a total loss of 0.4%. Markets are also weak in Alberta, where prices did not rise for a fifth month in a row in Calgary, and for a third consecutive month in Edmonton, for cumulative declines of 1.4% and 1.3% respectively.

There are, however, some areas of strength in the country. In Montreal, for example, home sales are at a record level so far in 2018. With interest rates set to rise more slowly than previously thought, hopes for a soft landing of the Canadian home resale market are still warranted.”

Housing affordability will continue to be difficult.

Although falling home prices may mitigate housing affordability somewhat, economists predict that it will still be hard for new homeowners to enter the housing market, especially in urban areas.

RBC’s Housing Affordability report for December 2018 predicts that there is “little relief in sight.”

“Buyers in Vancouver, Toronto and Victoria needed between two and three times the median household income to qualify to purchase an average home in the third quarter,” said Craig Wright the Senior Vice-President and Chief Economist at RBC.

“Poor affordability has made it nearly impossible for some buyers – often young households – to enter these housing markets.”

Multi-family market will expand.

As housing affordability continues to make it hard to enter the housing market, PwC Canada predicts that the multi-family market will expand to make up the ground.

“Our survey results reflect that trend, with respondents citing multi-family homes as a top development prospect,” stated PwC in its 2019 Emerging Trends in Real Estate report.

“Statistics Canada has been reporting brisk activity for building permits for multi-family dwellings. In fact, it reported a record $3.1 billion in multi-family building permits for May 2018. Interviewees cited multi-family rental prospects as being particularly strong.”

Multi-family units and non-traditional trends, like co-ownership, may continue to rise in 2019, especially for those looking to enter the housing market for the first time.

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