26 December 2018
The British Columbia Real Estate Association expects the Bank of Canada to remain on hold with its increases plans and to raise its key lending rate from 1.75% to 2.50% only by 2020.
“In our opinion, the BoC may raise the rate twice in 2019 at most, but we expect only one hike”, – the report says. “Variable rates could grow modestly with a higher prime rate, but 5-year fixed rates will remain almost unchanged and may even go down in the first quarter of 2019.” CREA expects a 5-year fixed rate to go down to 3.64% in the first quarter of the next year and then to rise to 3.74% in the second one.
Mortgage market
The election is coming, so most candidates will probably include the issue of mortgage accessibility to their campaigns, focusing on first-time buyers, as it’s harder for them to find financing than ever. Here are top three most anticipated suggestions in the politicians’ campaigns:
- A limit on the interest rate used for stress-testing borrowers.
- The return of 30-year amortizations for first-time buyers who apply for default-insured mortgages.
- No stress test for borrowers who want to change their lenders in order to get a better interest rate.
As you know, the stress-test rule was implemented a year ago. It requires home buyers with a down payment of at least 20% to prove they can manage their mortgage payments by qualifying under the greater of: the BoC’s five-year benchmark rate or the contract rate plus 2%. In case you have an insured mortgage (with a down payment of less than 20%), you will be tested by the greater of: the same BoC’s benchmark rate or the contract rate without additional 2%.
Face-to-face mortgage sales decrease
Current mortgage borrowers want quick and intelligent advice without the marketing tricks. They want the lowest interest rates as well. And lenders and brokers could provide both of these things, if they didn’t have to maintain such large sales forces. Visits to banks for mortgage advice will be less common by the end of the next year. More borrowers will focus on online pre-qualification and documents exchange. Those who want to get advice personally tend to want a 0.1% lower rate.
Stricter rules for HELOC clients
In case you have a home equity line of credit (HELOC) and you want a new mortgage on another home, it could become more difficult for you to get it. Now, two largest Canadian banks, RBC and TD, assume that you’ll max out your HELOC, when reviewing your mortgage application. It’s their new way of assessing if you can actually afford another mortgage in addition to the existing one, even if you haven’t borrowed a dollar from that HELOC. The banking regulator considers this method reasonable, and other lenders may follow the trend next year. As a result, borrowers with existing HELOCs will qualify for a smaller mortgage, reducing sales of second properties, rental units and vacation homes.
CREA has a pessimistic forecast for 2019
The Canadian Real Estate Association expects national home sales to show double-digit drops next year, going down to the lowest mark in 5 years.
Although population growth provides the necessary support, CREA says most of the challenges come from the government policy developed for cooling down the real estate market.
“Economic and demographic fundamentals are still supportive for housing demand in many Canadian regions, but the policy changes combined with growing rates are limiting access to mortgage financing and negatively affecting homebuyer sentiment,” – CREA noted.
“However, home prices growth has slowed significantly in certain areas. Housing prices are decreasing in those parts of the country where the real estate supply exceeds home sales,”- it added.
The national average price is expected to fall by 4.2% from 2017 to $488,600 in 2018.
CMHC predicts moderate activity in 2019 and 2020
According to the Canada Mortgage and Housing Corporation (CMHC), next year will see a housing slowdown.
It says housing starts will drop to only 194,000 – 204,500 units.
“We predict moderation in Canada’s real estate markets for the next two years,” – noted Bob Dugan, CMHC’s Chief Economist. “Housing starts will drop from the recent higher levels. In case of the resale market, we expect the numbers to remain below recent peaks in 2019 and 2020, while prices may reach levels more in line with income, job and population growth.”
The GTA will face balanced conditions with modest sales growth and housing price growth in line with inflation. Growing homeownership costs will provide the necessary support for a rental market.
Real estate firms expect moderate prices increase
Royal LePage and Re/Max both predict a moderate house prices growth in 2019.
According to Royal LePage, the average home price will go up by 1.2% next year, with prices in the GTA rising by 1.3% to $854,552. In case of Vancouver, prices are expected to go up by only 0.6% to $1.29 million. Meanwhile, home prices in Montreal may show a record high growth of 3% to $421,306.
CEO Phil Soper believes Canada’s real estate market will remain in a “correctional cycle,” with the prices growing very slowly.
At the same time, Re/Max predicts a 1.7% national prices increase with the largest hikes in London (+17%), Chilliwack (+13%) and Windsor (+13%).
Re/Max also says that first-time buyers will “dominate” the real estate market next year, and young couples are expected to prefer condos and townhomes in the $350,000 to $500,000 price range.