Multiple factors will weigh upon Canadian housing next year

by Ephraim Vecina on 03 Dec 2018

A potent cocktail of pressures will drag down the Canadian residential market well into 2019, according to the latest Quarterly Financial Report new report by the Canada Mortgage and Housing Corporation.

In the study covering the quarter ending September 2018, the CMHC stated that the trend shouldn’t be surprising, as the housing segment has already exhibited signs of cooling earlier this year.

“Taken together—tighter mortgage rules, rising interest rates and a slowing economy—are expected to underpin reduced demand for housing, resulting in slower price growth over the near term,” the report warned.

The national average MLS® price stood at $452,233 in the first 8 months of 2018, declining by 3.7% year-over-year. This marked the first decline in national prices since the 2009 recession.

This was made even more manifest in sales activity: MLS® transactions nationwide recorded a significant 11.7% annual slowdown from January to August this year, down to 327,206 units. Canadian housing starts during the same period remained flat at around 144,644 units.

Read more: Canadian household debt-to-income ratios are easing – BoC

And while the national economy is expected to benefit from a moderate pace for a prolonged duration, annual GDP growth will likely settle at 2% this year and 1.9% in 2019, “with the economy operating close to its potential rate,” the Crown corporation stated.

This economic robustness will also contribute to further interest rate growth, which in turn would propel debt service costs. The nationwide mortgage debt service ratio went up slightly to 6.5% in the second quarter of the year, compared to the 6.3% during the same time in 2017.

Further rate hikes imply “that an increasing share of household income would be required to service higher debt repayments,” according to the report, adding that “although debt levels remain elevated, these trends are expected to curb borrowing activity, while also reducing dependence on debt to fuel economic growth in Canada.”


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