This is what analysts think will affect home prices in 2018

Wednesday Jan 03rd, 2018


Analysts are predicting a cooler housing market in 2018, with falling prices in the first few months of the year. But what is it that will pull prices downwards?

It’s impending mortgage rule changes that are to blame, according to a recent Reuters poll of Canadian analysts.

Beginning January 1, a new mortgage stress test will require all uninsured mortgage borrowers to qualify against the Bank of Canada’s five-year benchmark rate, or at their contract rate plus an additional 2 per cent.

“We can expect residential investment to slow down next year after the new restrictive guidelines come into effect,” reads a recent report from Desjardins on the effects of the test.

Analysts in Reuters poll agree, predicting that home prices will grow by 1.9 per cent in 2018, a serious decrease from 2017’s 8.5 per cent gain.

Toronto prices are predicted to grow by only 2 per cent in 2018, followed by 3 per cent in 2019, following record high growth in the first quarter of 2017, including a 30 per cent leap in the average sales price in March.

Meanwhile, Vancouver could see growth of 6 per cent in 2018, before cooling to 4.6 per cent the following year.

Analysts also singled out higher interest rates as a major factor in a cooling national housing market.

The Bank of Canada has hiked the overnight rate 50 basis points this year, up from a historically low 0.5 per cent. Many economists predict that it will continue to raise rates over the course of 2018.

But though analysts seem confident that prices will come down in 2018, not everyone’s so sure. According to Royal LePage CEO Phil Soper, higher interest rates and a stricter stress test won’t be able to keep the market cool for long.

“Attempting to use public policy to steer property prices in huge, rapidly growing cities like Toronto and Vancouver is like a tugboat trying to turn an ocean liner,” he writes. “Consistent, measured policy can have a positive impact. Just don’t try to turn the market on a dime or you risk sinking the ship.”

It’s a sentiment shared by CIBC senior economist Benjamin Tal. “Without dealing with the real fundamental issues of [markets like] the GTA, these policy changes are able to provide only temporary relief,” Tal told BuzzBuzzNews.

That’s because, according to Tal, the GTA and the Greater Vancouver Area are both facing a significant lack of supply.

“If you look at the long term trajectory, and where prices will be, say, 10 years from now, I think they will be increasingly more and more unaffordable to the average Canadian,” he says.

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