Speaking to a room of industry professionals at Wednesday’s Empire Club of Canada lunch, Soper added: “Relative to the growth in wages, home prices have appreciated too quickly in places like Toronto and Vancouver. Affordability has eroded and we expect that pace of appreciation to slow.
“There is very little evidence of strained affordability outside Toronto and Vancouver. Even in the suburban markets, we see relief.”
But investors and homebuyers should not worry about home prices completely collapsing, as some economists have predicted. “This seems highly unlikely in a future characterized by low interest rates and a healthy economy, which is what we see,” added Soper.
While Alberta, Saskatchewan, and Newfoundland and Labrador, are experiencing firsthand the drop in oil prices with a hit to consumer confidence and the removal of real estate transactions from the market, Central Canada, and particularly Ontario, has actually felt a mild stimulus to its economy thanks to the lower oil prices.
“As we look out to 2015, we forecast home prices in Toronto will rise by 4.5 per cent, compared to the 7.5 per cent we saw in 2014,” said Soper. “We believe the slowdown would have been more dramatic if it had not been for the drop in the price of oil.”
On a national level, home prices do not decline very often. Soper pointed out, in fact, that national home prices have declined only four times in the past 35 years and typically for less than 12 months each time.
“A ‘soft landing’ in our industry isn’t really a landing at all,” he added. “We need that [decline] to happen because, when home prices rise at a higher and faster rate than underlying rises in wages, affordability gets strained.”
Independent of the decline in oil prices and changes to the interest rate, there is a broad moderating trend across Canada’s housing market that is pushing towards lower levels of activity and appreciation, said Phil Soper, president and CEO of Royal LePage.