Canadian Housing Market expected to moderate in 2019
CMHC Releases Fall Forecast
A new report released by the Canadian Mortgage and Housing Corporation is predicting that housing starts in Canada will gradually slow down until at least 2020, to keep in line with a moderating economic outlook and demographic conditions.
The CMHC says while income, employment and household formation will continue to support new residential construction, these fundamentals will see slower growth. As a result, the CMHC says housing starts will be brought closer to levels broadly in line with long-run averages by the end of 2020.
Summary of CMHC Report Findings
- Population growth will continue to stimulate new construction, but at a slower pace than in previous years as a result of an expected decline in net international migration.
- Furthermore, with mortgage rates forecast to continue gradually increasing, demand for housing will moderate and resale market conditions will ease. Single-detached housing starts are anticipated to decrease over the forecast horizon.
- Multi-unit housing starts are expected to trend down despite inventories of completed and unsold units being at their lowest level since 2008.
- In fact, smaller growth in the population aged 25 to 34, a large pool of first-time buyers, is expected to temper demand for this housing type. Increasing demand for apartments and smaller dwellings due to population aging will partly offset this downward trend over the forecast horizon.
- Global trade tensions have risen recently thereby increasing the risk that the global and Canadian economies perform less than expected, which could have a negative impact on housing activity
Sales of existing homes expected to moderate
The CMHC is also predicting that slower employment and GDP growth, as well as gradually increasing mortgage rates, will restrain the increase in demand for existing homes by 2020. As demand moves to lower levels relative to new supply, market conditions are expected to ease. In addition to risks related to trade tensions, the high ratio of household debt to personal disposable income increases the vulnerability of households to fluctuations in the economy and is also a risk to housing activity. If interest rates or unemployment rates were to rise more than expected, heavily indebted households could face greater constraints on their consumption leading to downward pressure on the economy and housing activity.
Price growth to remain modest
As for housing prices, the CMHC is predicting price growth to slow at the National level this year. By 2020, demand is expected to continue to shift towards relatively less expensive housing options such as apartment condominiums. This combined with slowing growth in economic conditions will lead to modest average price growth over the forecast horizon.
What about Saskatchewan?
The CMHC is pretty optimistic about the housing market in Saskatchewan.
It says as Saskatchewan’s economy generates more employment opportunities, net interprovincial migration is expected to improve. International migration will continue to support new household formation and population growth. The CMHC says a drop in new housing starts in 2018 is expected to reduce inventory and stabilize prices.
- Resale prices are expected to make modest gains in 2019 & 2020
“Slower economic growth, increasing net outflows of migrants to other provinces, rising mortgage rates and rising construction costs have moderated demand for new housing units in 2018. Next year, continued employment growth, firmer oil prices, and a lower inventory of new homes will support a modest recovery in housing starts.
Further gains in residential starts are forecast for 2020 as growth in the local economy gathers momentum. Both single-detached and multifamily starts in the Saskatoon CMA are forecast to rise over the two-year horizon. Neighbourhood expansion efforts in the city’s northeast end will support gains in single-detached construction in 2019 and 2020.
However, the level of overall production in both years is expected to remain significantly below that achieved in 2014, prior to the recession. In the multiples sector, affordability concerns due to rising interest rates will help shore up production of lower-priced options such as townhouses and condominium apartments.”
“After a strong performance in 2017, total housing starts in the Regina CMA are set for a significant decline in 2018. Weak employment growth and higher mortgage rates have combined to reduce consumer buying power, which has moderated demand for new housing units this year.
In addition, Provincial Sales Tax (PST) charges implemented on construction services, new home warranty, home insurance, input costs of land and its infrastructure have increased construction costs and prompted homebuilders to scale back production. Nonetheless, a modest recovery in residential construction is forecast for 2019, based on expected gains in employment and higher oil prices.
Further gains in residential starts are expected in 2020 as economic conditions continue to improve. Elevated inventories of newly constructed single-detached units have significantly slowed the pace of starts this year. However, singledetached starts are forecast to post modest gains over the next two years as employment and population growth increase. In the multi-family sector, affordability concerns entail more favourable prospects for the production of lower-priced dwelling options such as townhouses and condominium apartments, which will increase in 2019 and 2020.”
You can read the full CMHC Report on Saskatchewan’s Housing Market by clicking here.