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What Will Drive Canada’s Housing Market in 2018?

What Will Drive Canada’s Housing Market in 2018?
3 min. read

2017 was a hot year for Canadian real estate, and with so many changes reshaping the market, these are the main things to keep an eye on in 2018.

Foreign Buyers Remain under the Radar

In order to stop foreign buyers from pushing up home sale prices, major housing markets Vancouver and Toronto implemented a 15% foreign buyers’ tax in late 2016 and in April 2017, respectively. A drop in both home values and sales was noted immediately. However, both rebounded shortly.

While according to Statistics Canada foreign buyers make up a small share of the Toronto and Vancouver markets, only 5%, foreign ownership is set to remain a major topic in real estate in 2018, as concerns over growing home prices remain strong.

Mortgage Rules Change in 2018

New mortgage rules from the Office of the Superintendent of Financial Institutions coming into effect in January 2018 mean that borrowers must undergo a “stress test” to ensure that they can still deliver their monthly payments if mortgage rates increase. As a result, potential buyers who do not pass the test will either have to settle for a smaller mortgage or sit out the buying process completely.

While concerns are expressed that the stress test could lead to a surge in unregulated loans, economist Doug Porter at the Bank of Montreal believes that the market will remain unchanged by the new regulations, as it has after many other changes.

Interest Rates Are Likely to Increase

Changes in mortgage regulations stem from the assumption that interest rates will rise in 2018. Looking at the increases made by the Bank of Canada in 2017, investors foresee a hike in interest rates as soon as January. According to Ratehub Inc. co-founder James Laird, two rate increases are expected this year, with a subsequent effect on mortgages and housing activity.

Home Sales Data Will Become Available to the Public

A hot topic in 2018 remains the dispute between the Toronto Real Estate Board and Canada’s Competition Bureau. In December 2017, the Federal Court of Appeal upheld a decision which forces TREB to stop withholding information on home sales. According to CBC, TREB will most likely appeal the decision to the Supreme Court of Canada.

Although the dispute is centred on the Toronto real estate market, it is expected that the changes will ultimately have a nationwide effect, because of TREB’s wide influence.

What Will Happen to House Prices?

With all these changes coming into effect, experts are weighing up what will happen to home prices in 2018. While opinions remain divided, everyone seems to agree that home prices are bound to increase, even if the gains are smaller than those of 2017.

According to Ratehub’s James Laird, the tax on foreign buyers and the new stress test rules will most likely counter-balance expected gains that come from a strong demand and a growing economy, leading to a flat market.

TD Bank Economist Michael Dolega remains in favour of the soft-landing scenario predicted in 2017, while Bank of Montreal economist Robert Kavic also expects that the new OSFI regulations and the increase in interest rates should keep price gains at a much lower level than in 2017.

 Original article published by cbc.ca

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