As we head into a new year, the most common question I get asked is, “What’s the outlook for real estate in 2018?”
It’s not just potential buyers and sellers who care – current homeowners also want reassurance about the value of their investment. No one knows exactly what 2018 will bring for real estate, but I’ve outlined expert predictions on where the market is headed and how government interventions are expected to impact the Canadian housing market in the year ahead.
HOUSING PRICES WILL REMAIN HIGH IN URBAN CENTRES
Although the Toronto real estate market did experience a slowdown in 2017, housing affordability will remain a major issue in both Toronto and Vancouver in 2018. According to the Royal Bank of Canada’s most recent Housing Trends and Affordability Report, as of Q2 2017 it cost more than 75 percent (Toronto) and 80 percent (Vancouver) of median household income to cover the average cost of owning a home.1
In an effort to stabilize real estate prices, both the Ontario and British Columbia governments enacted a 15 percent tax on foreign investments in housing. However, according to the PricewaterhouseCoopers report on Emerging Trends in Real Estate: Canada and the United States 2018, “Industry players are skeptical that recent tax moves … to curtail foreign investment will have a long-term cooling impact on housing affordability in Toronto and Vancouver.”2
In its Canadian Regional Housing Outlook, TD Economics predicts ”The decline in sales activity in both Vancouver and Toronto has helped to redistribute the balance of power from a pure seller’s market, back towards buyers, as evidenced by the sales-to-listing ratios. But, first-time homebuyers sitting on the sidelines waiting for higher interest rates to trigger a real estate market crash may be holding their breath for a while. Prices are likely to only reset back to levels that existed prior to a year of exorbitant gains.”3
The high cost of living has forced a growing number of millennials to seek alternatives to traditional housing. The 2016 census found 47.4 percent of young adults in Toronto and 38.6 percent in Vancouver live with a parent. PricewaterhouseCoopers predicts a rise in multi-generational and multi-family homes (as I’ve mentioned in a previous blog post), a move towards larger condominiums to suit growing families, and a flight from urban cores as new public transit projects make commuting more feasible.2
What does it mean for you? If you’re a current homeowner, you can expect your investment to hold its value and continue to appreciate over the long term. And if you’re considering selling this year, contact me and I’ll put together a free Comparative Market Analysis to find out how much you can expect your home to sell for under current market conditions.
If you’re a potential buyer who has been waiting for real estate prices to drop, don’t expect a fallout any time soon. Governmental bodies have taken steps to slow down skyrocketing prices, which has helped to balance the real estate market. Now is a great time to buy. And if traditional housing options don’t fit your budget, I can certainly help you find alternatives to meet your needs.
GOVERNMENT INTERVENTIONS WILL HELP TO STABILIZE THE REAL ESTATE MARKET
Skyrocketing real estate prices have caused Canadians to take on a growing amount of debt. The federal Parliamentary Budget Office (PBO) reports that the average household indebtedness is up to 174 percent of disposable income, and they predict it will reach 180 percent by the end of 2018. Coupled with rising interest rates, the share of income that will go towards debt payments is expected to reach historic proportions.4 Regulators at the Office of the Superintendent of Financial Institutions (OSFI) have attempted to curb the potential fallout with interventions, the latest of which went into effect on January 1. These new regulations raise the requirements for mortgage borrowers with down payments of 20 percent or more. They are now required to qualify for a mortgage at an interest rate two percentage points higher than their current rate to ensure they can manage payments when interest rates do inevitably rise.
A similar “stress test” was enacted in 2016 for borrowers who put down less than 20 percent, but that regulation impacted a much smaller percentage of real estate buyers.
According to Jeremy Rudin, the head of OSFI, “We clearly see the potential risks caused by high household indebtedness across Canada, and by high real estate prices in some markets. We are not waiting to see those risks crystallize in rising arrears and defaults before we act.”5
All federally regulated financial institutions will be obligated to utilize these requirements for both new mortgages and mortgage renewal applications of borrowers applying to switch lenders. It is not mandatory to apply the test at mortgage renewal for existing borrowers. Since credit unions are regulated provincially, they are not required to follow the new OSFI rules, although some may choose to out of prudence.
What does it mean for you? With new rules in effect, if you’re a buyer, your purchasing power may be impacted. If you’re concerned you may not be able to meet these requirements, securing your mortgage through a credit union may be an option. As an avid “numbers guy” I am following this issue closely. Give me a call so we can discuss how these new rules could possibly affect your Halifax home search.
If you’re considering selling your home this year, these regulations could alter the type of buyer who will be willing and able to purchase your home. I have expertise in this area and know how to market your home to a changing demographic.
5 YEAR MORTGAGES WILL MAKE A COMEBACK Expect interest rates to rise in 2018. Bank of Canada has indicated that borrowers should expect to see rate increases this year … and notably, nearly half of Canadian mortgage holders are set to renew their mortgages in the next 12 months. Combined with the new, more stringent “stress test” requirements, a greater number of homeowners will be opting for five-year-fixed rate mortgages over the historically popular variable rate mortgages.6 According to LowerRates.ca, “Since January 2014, 56% of Canadian borrowers who applied for a mortgage through LowestRates.ca have gone variable, compared with 43% of those who got a five-year fixed. But this past August, there was a shift, where the five-year-fixed rate mortgage saw a sharp increase in applicants, with 59% of users on the LowestRates.ca site opting for this option versus only 39% opting for the variable mortgage.”7
What does it mean for you? If you’re in the real estate market to buy, act now. Rising interest rates will decrease your purchasing power, so act quickly before interest rates go up. Give me a call today to get your home search started.
And if you’re a current homeowner who is set to renew your mortgage, you may want to consider locking in a five-year-fixed rate. Contact me if you would like assistance navigating your options and I’d be happy to recommend you to one of my trusted authorities in the market.
|2018 ACTION PLAN If you plan to BUY this year:
If you plan to SELL this year: