CMHC releases market outlook

by Neil Sharma30 Oct 2017
The Canadian Mortgage and Housing Corporation released its Housing Market Outlook report, and affordability remains at the heart of issues plaguing Canada’s largest city. However, price growth is expected to moderate.

Although Canada’s economy is expected to remain healthy, GDP growth by 2019 is expected to slow down. CMHC forecasts 2018 growth to be between 1.2% and 2.5%, but only between 1% and 2.4% a year later.

Mortgage rates are also expected to incrementally increase over the next couple of years, as is normal with healthy economies, in tandem with global interest rates. CMHC’s expected a rate between 4.9% and 5.7% over the life of a five-year fixed in its baseline scenario, meaning the basis points won’t exceed 160. Moreover, the report concluded that mortgage rates will remain below levels antecedent to the Great Recession.

The cost of housing across the board will only rise moderately, unlike the astronomical growth the region saw in recent years.

“We’re not going to see double-digit price growth,” Dana Senagama, principal of market analysis for the GTA at CMHC. “It will be more balanced with more listings, but not more sales across the board. We’ll have more balanced conditions.”

The report also forecasts a dangerously low vacancy rate, which Senagama says will barely increase to 1.2% in 2019, up from 1% in 2018.

She added that in spite of the squeeze on rental housing, long-term investors are very active in the condo market, buying units and using them as rental properties, which will allay some of the pressures renters face. But it’s also impacting condo prices.

“It contributes somewhat to rising prices overall,” said Senagama,” and it raises prices because you’re competing with other buyers and now you’re competing with investors.”

While Senagama says the rental market will remain tight, the province has invested in tenants through the Rental Fairness Act. One provision is rent control, however, many will stay put in their abodes and further constrain the supply.

High migration levels will ultimately help sustain the market, even though demand will taper within a couple of years.

“Immigrants typically take three years from entering the country to transition into homeownership,” said Senagama. “There are also migrants from other provinces, too.”

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