What’s in store for the market in 2018? While it’s impossible to know for sure, experts analyze current trends to predict what may happen.
The market should continue to moderate.
Home prices are expected to make very modest gains in 2018. Experts are predicting an increase of 1.2 percent, the smallest increase since 2009.(1) Comparatively, home prices increased an average of 9.6 percent in 2016.(1) The Canadian Real Estate Association (CREA) predicts the national average sales price will be $535,400.(2)
At the provincial level, both Ontario and British Columbia, which have seen impressive price gains over the last few years, will experience price increases around one percent in 2018.(2) Alberta and Quebec will also experience modest price gains: prices in Alberta are expected to grow 0.6 percent and prices in Quebec are expected to increase 3.2 percent in the same period.(3)
Nationally, experts predict home sales may fall throughout 2018.(1) CREA adjusted its sales forecast due to slowing sales activity across the country. However, there are bright spots: affordability remains favourable in the Prairie and Atlantic Provinces and is improving in Quebec.(4)
What’s responsible for the levelling off of the market?
There’s no simple answer. In fact, several factors working together have contributed to a levelling in the market. These factors include the housing regulations that have been enacted over the last few years (including taxes on foreign homebuyers), decreased affordability in many areas and increased interest rates.(1) Although interest rates have been relatively low compared to past trends, the Bank of Canada is expected to increase its key interest rate by the end of 2018.(1)
Although all of these factors have played a role in moderating the Canadian housing market, it’s important to keep in mind that real estate is cyclical and the red-hot market was expected to level off eventually. While Canadians have consistently viewed a home as a good investment, many potential buyers have been delaying purchasing a home in hopes that prices will come down and become more affordable.(5) A moderate housing market is not only more stable; it may help potential buyers who have been eager to purchase a home, but may have been priced out of their markets.
What does this mean for the Canadian economy?
The Canadian housing market has been hot for the last few years, especially in Ontario and British Columbia. The boost in the market has driven employment and economic growth across the nation, particularly over the past year. A levelling in the market may have an impact on the overall economy, which may be felt gradually over the next two years.(6) However, experts don’t predict a sharp correction; instead, they expect a transitioning of the housing market into more moderate territory.(6)
1. Royal Bank of Canada
2. Canadian Real Estate Association
3. The Globe and Mail
4. Royal Bank of Canada, Housing Trends and Affordability
5. Royal Bank of Canada Home Ownership Poll