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Slowing Canadian Housing Market Expected for Early 2018

December 20, 2017 By Hatch Mortgages
Canadian Housing Market Slowing into 2018

The many moving parts that constitute Canada’s economy are showing mixed signals for the first three quarters of 2017. Strong exports and a hot housing market powered our economy in the first half of 2017, peaking at a blistering 4.5 per cent GDP growth in the second quarter. The brakes were applied to our economic engine in the third quarter by a drop in exports and a slowing housing market, the result of tighter mortgage rules and two successive Bank of Canada rate increases over the summer. The third quarter slowdown has been offset by a very strong jobs market, which saw a drop in unemployment and an increase employee compensation, which are putting upward pressure on the Loonie. All told, the economic outlook for the start of 2018, isn’t as dire as it was seeming just weeks ago; however, many experts are predicting that we should brace for the housing market slowdown to continue and intensify into the start of 2018.

Housing Market Slowdown in GTA

Tighter mortgage rules introduced in the spring of 2017, specifically a 15 per cent foreign buyers tax in Ontario, coupled with the first rate increase by the Bank of Canada in 7 years, of 0.25 per cent in July, followed by another quarter point increase in September, created strong downward pressure on the housing market in Canada’s largest province and particularly new housing starts in the GTA:

Canada Mortgage and Housing Corp. said 2,438 new housing units were launched in the Greater Toronto Area in October, a 42-per-cent drop from 4,204 units in the same month last year. Starts were also down 21 per cent over September on a seasonally adjusted basis. – Globe and Mail

New Mortgage Regulations on January 1st, 2018

On January 1st, 2018, a new mortgage stress test, instituted for federally regulated lenders in Canada by the Office of the Superintendent of Financial Institutions (OSFI), will come into full effect for so-called “uninsured borrowers,” with a down payment of greater than 20 per cent of their home’s value on their mortgage, and therefore not requiring government-backed mortgage insurance. In the finale weeks of 2017, analysts are predicting a temporary uptick in housing sales and mortgage renewals as many mortgage applicants are scrambling to lock-in their mortgage before this hammer falls, which is expected to create a significant drop in purchasing power for home buyers going into 2018: suggests it could result in a family’s purchasing power being reduced by up to 21 per cent, once the new test is in place. –

Inflationary Concerns Put Pressure on Bank of Canada

Further downward pressure on the Canadian housing market in 2018 could come from the Bank of Canada by way of another interest rate hike, spurred by the latest report from Statistics Canada for this November, which showed a drop in unemployment, an increase in wages and strong consumer spending:

The jobless rate plunged to 5.9 per cent in November as employers added another 79,500 workers during the month, bringing gains over the past 12 months to nearly 400,000, Statistics Canada said [Dec. 01] from Ottawa… The Canadian dollar soared on the data, rising more than a cent to 78.67 US cents… The spending is being fuelled by a buoyant jobs market that is driving incomes. Compensation of employees rose an annualized 1.3% in nominal terms in the third quarter, the strongest growth since 2014, the GDP report showed. Financial Post

The combination of lower unemployment and wage increases are driving consumer spending and placing upward pressure on inflation, the key metric monitored and anticipated by our central bank when considering its next rate hike. Many economists are predicting the next hike will come sometime in early 2018, after the central bank held its key overnight lending rate unchanged on December 6th:

The Bank of Canada announced [December 6th] that it would hold its target for the overnight rate at one per cent. But will there be further rate increases next year? “With economic growth appearing likely to exceed the Bank’s 2.5% expectation for the fourth quarter of this year, things continue to point to a hike sooner rather than later,” writes [Brian] DePratto [Senior Economist with TD]. – BuzzBuzzNews Canada

Housing Market Heading for a Dip in 2018 According to Experts

The November jobs and wages numbers are certainly some welcome news, especially as we head into the Christmas shopping season, where consumer optimism can make or break, even the largest retail chains. Many of the other underlying economic conditions and pending new regulations, key to the housing market, remain and have resulted in a chorus of industry experts predicting that the housing market will take a significant dip at the outset of 2018:

It’s likely to create some short-term volatility by displacing activity over the next several months: first triggering a temporary run-up between now and the end of 2017, followed by a dip in activity in the opening months of 2018. When all is said and done, though, we expect the new rules to dampen homebuyer demand across Canada. – RBC

Canadian home sales are expected to drop to their lowest level in three years in 2018, driven largely by a decline in Ontario, the Canadian Real Estate Association (CREA) said. – Toronto Star

The slew of new policies introduced this year in provinces such as Ontario and British Columbia, combined with new federal policies set to take effect next year, will create a lot of downward pressure on prices. – lowest

Employment Market Could be Volatile in the Coming Months

If the prevailing economic conditions continue, and new housing starts in Ontario are indeed heading for a significant and sustained drop, well-paying construction jobs will be at stake in the new year. Retail jobs are also at risk as we enter the peak of the intense Christmas shopping season, especially with traditional retailers facing increased pressure from online stores.

One of the most recent high profile examples of retail demise is Sears Canada. Sears has been a long-standing pillar of the Canadian retail landscape, going back decades from its roots as an innovative national mail order business… which was cutting edge at the time. Over the years, Sears has distinguished itself as a brand with caring customer service, employing local, hardworking and dedicated staff across Canada. The vast majority of Sears staff will be looking for employment in the industry in the new year. It is our hope at Hatch Online mortgages that the extremely positive November employment numbers, and associated spending power, will translate into a healthy Christmas retail season so that former Sears employers will have a bit of softer landing and an easier time finding work elsewhere.

Hatch is Here to Help Lower the Cost of Home Ownership and Acquisition

With a cooling housing market and inflationary pressures stoking the Bank of Canada to consider another rate hike in the near future, homebuyers and mortgage applicants will be more sensitive, to even marginal increases in the cost of home ownership and acquisition.

Whether the housing market in Canada drops a little, or a lot, in the coming months, Hatch is here to process your mortgage application and give you some of the best mortgages rates, anywhere in Canada, all through our convenient online application process. Let us get cracking today to help you settle into your dream nest.