Home sales set for stronger 6 months, rates to rise

by Steve Randall21 Jun 2018

The impact of the B-20 mortgage guidelines, especially the stress tests, have made a significant impact on Canada’s housing sales; but that may be about to change.

In a newly-published outlook for mortgage rates and the housing market, the chief economist of the British Columbia Real Estate Association says there’s a good chance things will start to improve soon.

“If the impact of the stress test evolves in a similar fashion to past macroprudential tightening, we expect that home sales and the wider Canadian economy will rebound in the second half of the year,” says Cameron Muir.

He adds that the outlook for the economy is 2.3% growth in GDP in 2018 and 2% in 2019 with inflation slightly above 2%.

What about mortgage rates?
The Bank of Canada is likely to continue to increase interest rates as the economy grows due to inflation at or near its target of 2%.

Mortgage rates are therefore likely to increase in the next year with the BoC expected to want to move the base rate from the current 1.25% to preferred long-run levels of 3-3.5%.

The outlook for mortgage rates is a 1-year posted rate of 3.80% by the end of 2018, rising to 4.64% a year later. The 5-year qualifying rate is forecast to reach 5.54% by the end of 2018, rising to 5.70% a year later; the 5-year discount rate’s forecast is 3.64% by the end of this year and 3.84% by the end of 2019.

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