MLS home sales to fall, CREA says in latest forecast
OTTAWA – Tougher government regulations that make it harder for some consumers to qualify for a mortgage combined with higher interest rates as well as affordability issues on some parts of the country will cause housing sales through its Multiple Listing Service to fall sharply in 2018, according to the latest forecast the Canadian Real Estate Association (CREA). While they will rebound modestly in 2019, they will remain below the levels seen between 2014 and 2017.
“Economic and demographic fundamentals remain supportive for housing demand in many parts of the country; however, policy headwinds have impacted homebuyer sentiment and access to mortgage financing in many housing markets,” the realtors’ group said on a statement. “Further expected interest rate increases, combined with this year’s new federal mortgage stress test are expected to continue to keep home sales activity in check over the rest of the year and into 2019.”
A few years ago, an economic impact study conducted by CREA indicated every home sold generated furniture and appliance sales of $6,500 over the following three years.
The association said after the new mortgage were announced last October, they were expecting some sales to be pulled forward as buyers raced to complete their deals. “The response to the new policy was stronger than expected. In December 2017, seasonally adjusted national home sales surged to the highest on record before dropping sharply in early 2018,” the forecast said, adding at this point in 2018, the rules continue to weigh on home sales.
“National activity is on track to hit a five-year low in 2018,” CREA continued. “While summer sales activity in and around the Greater Toronto Area (GTA) showed signs of rebounding, this trend may be losing steam. Moreover, additional interest rate increases expected this year and in 2019 will continue to raise the bar that borrowers must clear to qualify for mortgage financing.”
These factors are expected to drive national sales down by 9.8% to 462,900 units in 2018. While this revised forecast is little changed from CREA’s June forecast, they noted stronger than expected activity in Ontario will be offset by weaker than anticipated activity in British Columbia. “Both provinces are nonetheless still projected to post double-digit declines in sales activity this year and account for most of the national decrease,” the association said.
Sales in Alberta and New Brunswick have also been somewhat stronger than expected in recent months, resulting in an upward revision in their 2018 sales forecasts. Activity in both provinces should moderate over the balance of the year compared to levels this summer.
The national average price is projected to ease to $494,900 this year, down 2.8% from 2017 and a reflection of fewer sales in B.C. and Ontario in 2018; however, the forecast has been revised lower as a rebound in British Columbia' sales activity so far remains absent.
It is also expected to be skewed by reduced sales of higher-priced homes, with provinces posting a smaller average price decline compared to the national result. Indeed, more than half of all provinces are projected to see average price gains in 2018, including British Columbia.
Ontario’s average price decline (-1.7%) largely reflects fewer higher-priced sales in Toronto, particularly during the spring which normally sees a seasonal jump in the average price that failed to materialise this year.
Meanwhile, home prices in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island are expected to continue rising following steadily firming market conditions in recent years.
Home prices are projected to edge down by about 1.5% in Alberta, Saskatchewan and Newfoundland & Labrador.
In 2019, national sales are forecast to rebound modestly (+2.1%) to 472,700 units but remain below annual levels recorded in 2014 through 2017. The anticipated partial recovery over the second half from deferred purchases over the first half of the year – already evident in Ontario but not in B.C. – is anticipated to fade over 2019 in tandem with further expected hikes in interest rates.
The national average price is forecast to rebound by 2.7% to $508,400 in 2019, reflecting modest average price growth in several provinces and the return of the normal seasonal pattern for sales and average prices in Ontario. Indeed, the forecast increase in average price for Ontario (3.3%) is larger than for any other province in 2019. The average sale price in B.C. is also forecast to rise but by less than the rate of consumer price inflation.
Market balance is continuing to firm in Quebec, New Brunswick, Nova Scotia and Prince Edward Island. Further modest price increases in these provinces are forecast in 2019, although price gains should be held in check by rising interest rates. Meanwhile, prices are forecast to remain stable from 2018 to 2019 in Alberta, while further edging down in Saskatchewan and Newfoundland & Labrador.