MLS sales to fall in 2018
OTTAWA – The number of existing homes sold through its Multiple Listing Service (MLS) is expected to fall 7.1% in 2018 as the national average price recedes 2.3% from the all-time high set last year, the Canadian Real Estate Association (CREA) says in its latest forecast. Both are expected to make modest recoveries in 2019, but still lag behind the marks set in 2017.
In its outlook, the realtors’ group noted housing market fundamentals remain supportive in many part of the country and attributes most of the expected decline to new rules concerning mortgages that came into effect this past January. These rules applied a stress test to mortgage applications involving down payments of less than 20%, and CREA maintained they “pulled forward” into December transactions which otherwise may have occurred during the first half of 2018.
“Evidence suggests the policy response was stronger than expected, with seasonally adjusted national home sales having shattered all previous monthly records last December before dropping sharply in the first two months of 2018,” the association said, noting when it published in last forecast in December 2017, housing markets were also being affected by other policy measure in British Columbia and Ontario, primarily in the attempt to cool rapidly rising prices in the Greater Vancouver and Greater Toronto areas.
“Interest rates are widely expected to rise further this year,” CREA noted. “Higher interest rates make mortgage stress tests a more difficult hurdle for homebuyers that need mortgage financing.
“Some homebuyers will likely to stay on the sidelines amid heightened housing market uncertainty and continue saving a larger down payment before purchasing,” the statement continued, “resulting in lower sales in the first half of 2018 followed by a modest rebound in the second half of 2018 as housing market uncertainty fades.”
Taking these factors into account, CREA projects national sales activity will fall to 7.1% to 479,400 units in 2018. “The decline reflects weaker sales in B.C. and Ontario, amid heightened housing market uncertainty caused by provincial policy measures, high home prices, ongoing supply shortages and tightening mortgage stress tests as interest rates rise,” the association said.
The national average price is projected to ease to $498,100 this year, down 2.3% from 2017. Only Newfoundland & Labrador is expected to post a decline of that size, while half of all provinces see average price gains. The decline reflects fewer transactions in B.C. and Ontario; by the same token, price declines in these provinces reflect fewer sales of higher-priced homes in Vancouver and Toronto.
Home prices in Eastern Ontario, Quebec, New Brunswick, Nova Scotia and Prince Edward Island are expected to continue to rise following years of steadily firming market conditions.
Meanwhile, for the fourth consecutive year, home prices are forecast to be little changed in Alberta and decline in Saskatchewan and Newfoundland and Labrador. In the latter two provinces, supply remains elevated in relation to demand.
In 2019, national sales are forecast to rebound modestly to 496,500 units but remain below levels recorded in 2015, 2016 and 2017.
“The rebound reflects an expected partial recovery of sales over the second half of 2018 in Ontario and B.C. followed by a gradual softening in activity over 2019 as previously deferred activity wanes and interest rates continue to rise,” CREA said, adding, “This trend is also expected in other provinces but be more pronounced in B.C. and Ontario, where transactions have fallen sharply in early 2018 despite a supportive economic and demographic backdrop for housing demand.”
Meanwhile, the national average price is forecast to rebound by 3.1% to $513,300 in 2019 – roughly in line with the 2017 figure and reflects modest price gains in a number of provinces as well as a partial rebound of sales activity in B.C. and Ontario.
Next year’s price gains in B.C. and Ontario reflect an expected improvement in sales in both Vancouver and Toronto – which will remain the two hottest real estate markets in the country – where homes are anticipated to remain in short supply relative to demand.
With market conditions continuing to firm up in Quebec, New Brunswick, Nova Scotia and Prince Edward Island, these provinces are forecast to see further modest price gains in 2019. Meanwhile, prices in Alberta, Saskatchewan, Manitoba and Newfoundland & Labrador are forecast to hold mostly steady from 2018 to 2019.