Monday, May 14, 2018

Home price appreciation to fall 80% this year says RBC

The national rate of home price appreciation has averaged more than 10% in the past 2 years but that’s set to change significantly.
In its latest housing market forecast, RBC Economics predicts a rise in home prices of just 1.8% for 2018 as policy actions and interest rates conspire to cool the market.
Economists are also expecting that home resales will be weaker in 2018 than 2017 (down 4.5% following a 4.3% drop in 2017) making the second year of annual declines, something not seen in Canada since the mid-90s.
But while price appreciation is to soften, RBC Economics does not see a significant correction nationwide; this risk, it says, is contained.
Supply-demand balance is expected to be seen in most major markets including Ontario and British Columbia, with steady support coming from economic fundamentals.
The mortgage stress test’s long-term impact
The tighter lending rules created by the new mortgage stress tests introduced by OSFI at the start of 2018 “will ultimately dampen homebuyer demand in Canada” RBC Economics senior economist Robert Hogue believes.
He adds in the report that the stress test will impact homebuyers’ budgets leading to growth for the lower-priced housing types at the expense of pricier units. This, he notes, is already being seen in Toronto and Vancouver and is expected to extend to other cities.
Interest rates will also continue to impact the market, with four more hikes forecast through to mid-2019 taking the rate to 2.25%. Hogue says that this will start to have more pronounced impact later in 2018.
Healthy correction
Overall, the RBC Economics’ forecast is for Canada’s housing market to face significant headwinds in 2018 but that the easing of markets represents a “healthy correction” over the past two years from 2016’s “unsustainably strong” conditions.