Moody’s Analytics released a Canada Housing Market Outlook report last week predicting the changes that will be seen in the housing market during the upcoming years. A lower house price growth in the first half of this year has been offset by the recent national home sales and house price growth in July and August. Since the middle of 2016, the government and its entities have intervened to curve demand with increases in interest rates, stress tests for mortgage borrowers, and taxes for foreign buyers. These measures have been felt in the market but the data from July and August show that it might be too soon to call for a price correction.
Price Correction, Affordability, and Mortgage Rates
There are three major takeaways from this report. First and foremost, the report predicts a stable Canadian housing market with no major short-term corrections in the next five years. Second, in the areas where there is high increases in house prices, there has been median family income growth which is improving overall affordability. And finally, the report predicts a rise in interest rates through 2020, which could potentially increase mortgage rates up to around 6%. However, a stable housing market with no significant decrease in house prices should buffer the effect of the above, and not affect mortgage debt performance.
The biggest risk is that the combination of potential higher mortgage rates with policies and “stress tests” (aimed at reducing demand on hot markets like Vancouver) could possibly lead to a price correction and a drop in sales. Nonetheless, with the levelling of house prices and sales seen in the last few months, the market might experience a more positive outlook.
Overall, the housing market is still far from the level of affordability that it experienced in 2015, but overall changes in the last few months imply that the market is slowly recovering.
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