22 February 2019

“The shift at the national real estate market from homeownership to rental goes on,” – says Sebastien Lavoie, chief economist at Laurentian Bank Securities.

“We expect further activity growth in the rental market, as the demand comes from several sources: immigration and atypical jobs, rising interest rates restraining buyers from a house purchase, the preference of millennials to postpone the home purchase in their life steps.”

When it comes to the potential risks to a market, analysts name an economic slowdown as the main one and higher mortgage rates as the next closest.

According to Sal Guatieri, senior economist at BMO Capital Markets, incomes in many regions will probably show a faster growth than real estate prices. This will end a long period of house prices exceeding incomes significantly.

The possibility of a longer period with moderate price gains and housing market activity are just in time to a forecast of sharp change in interest rates from the main central banks.

As the U.S. Federal Reserve takes a pause now, the Bank of Canada (BoC) will be under pressure to slow down or even stop rate hikes.

On Thursday, the Bank of Canada’s Governor Stephen Poloz said he was in no hurry to keep raising rates and while the rates need to reach the neutral range in time, the path back was highly uncertain.

Today, the overnight rate is 1.75% – it’s much lower even than the minimum level of the Bank’s neutral range (2.5%-3.5%), at which there is no need in stimulus.

“The BoC is probably thinking about the long-term task to reduce the excessive risk taken by households on the mortgage market,” – noted Laurentian’s Lavoie.

The recent Reuters polls concerning Canada’s real estate market were very accurate. A survey, released in December 2017, predicted the slowdown in home price rises last year, caused partially by the new mortgage rules.