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December 10th, 2018 
Chaim Talpalar
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Home Sales Slowdown Expected

Interest hike, new lending rules may trigger dive 

Canada’s real estate market will hit a slow patch in 2018 as tighter mortgage stress tests apply pressure & that impact could be exacerbated if an expected interest rate hike drives Buyers to put off their home purchases, economists, said Monday.

The Bank of Canada will make its first interest rate announcement of the year on Wednesday. Many observers predict it will boost the country’s benchmark rate by 25 points to 1.25% after the economy’s strong performance last year & a particularly strong jobs report from November. If the economy keeps pace, they believe that rate may be bumped up a few more times over 2018.

The suspected hikes could heap stress onto Buyers already combating stricter regulations that were introduced by the Office of the Superintendent of Financial Institutions on January 1st for uninsured mortgages, & elevated 5 year fixed mortgage rates that were pushed up by the CIBC, RBC & TD banks last week.

“This is the most significant test the market has been in recent years,” said Benjamin Tal, CIBC’s chief deputy chief economist.  He expects a market slowdown to be seen as early as the 1st quarter as people who were hoping to scoop up homes weigh whether renting or living with family for a bit longer will pay off later in the year when the country has grown accustomed to the new conditions. “The big question though is to what extent investors will stop buying,” says Tal. “That will carry a big effect, but it’s still the biggest unknown.”

The Canadian Real Estate Association slashed its sales forecast for 2018 to predict a 5.3% drop in national sales to 486,600 units this year, shaving about 8500 units from its previous estimate due to the impact of the stricter mortgage stress tests.

On Monday, the association released a report revealing that national home sales rose 4.5% in December from the month before & that the average national home price reached just over $496,500, up 5.7% from 1 year earlier.

It said the bounce likely stemmed from Buyers scrambling to nab homes before being forced to submit to the uninsured mortgage regulations, which requires would-be homebuyers with a more than 20% down payment to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus 2% points or the 5 year benchmark rate published by the Bank of Canada.

“It will be interesting to see if the monthly sales activity continues to rise despite tighter mortgage regulations,” Gregory Klump, CREA’s chief economist, said in the report.

It also shared that the number of homes on the market increased by 3.3% in December from the month before & December homes sales were up 4.1% on a year-over-year basis.

The improvements signal that the country is “fully recovering from the slump last summer” when there was a drop in sales before a set of policies introduced by the Ontario government in April produced the desired market slowdown in Toronto during the 2nd & 3rd  quarters following a HOT 1st quarter.

 Source MetroNews – The Canadian Press Jan 2018

Please feel free to contact me regarding this article or about any real estate needs or questions that you may have. Call me at  416-804-0991 (client line) or 416-441-2888 ext 266 (office) or email for more information.

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