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By Penelope Graham, Zoocasa
Special to the Financial Independence Hub
The long-awaited new decade is now upon us: but what does 2020 hold for Canada’s real estate market? According to a number of forecasts the year is shaping up to favour sellers, with a return to the type of conditions that prop up home prices.
However, with deeply discounted mortgage rates expected to linger throughout the year, not to mention a potential softening of the controversial stress test, home buyers could see a surge in their purchasing power in the near term. Let’s take a look at what could potentially be in the cards for the housing market as 2020 unfolds.
Slower sales in the rear view
While home sales took a tumble over the course of 2017 – 2018, last year saw sustained improvements in buyer activity in most of Canada’s urban centres. Much of this was due to buyers absorbing the shock of the federal mortgage stress test, which was introduced in January 2018, as well as a number of provincial taxes in Ontario and BC designed to reel in the demand end of the market.
While the Canadian Real Estate Association (CREA) notes that growth is uneven across the nation – the Prairie and Maritime markets continue to struggle with sales volume – transactions surged in Ontario and British Columbia in the second half of the year, which helped drive overall national growth.
This year, CREA expects the upward trend to continue, calling for 530,000 sales in 2020, up 8.9%. The national average home price will also tick higher by 2.3$ to $531,000.
The Canada Mortgage and Housing Corporation (CMHC), Canada’s largest provider of default mortgage insurance, and which acts as an overseer of the mortgage industry, has also called for home sales and prices to “fully recover” this year from their 2018 slump.
“Overall, economic and demographic conditions will remain supportive of housing activity over the forecast horizon, halting the declines in starts, sales, and average home prices that followed the highs of 2016 – 2017,” it states in its most recent Housing Market Outlook.
It forecasts home transactions to total between 480,600 – 497,700 sales in 2020, up 6%, with the average price between $506,200 – $531,000, up 5.6 – 6.7% from 2019.
While sales are on the rise, however, the same can’t be said for new MLS listings in Canada – and the resulting supply-and-demand gap could re-stoke unsustainable price growth. According to CREA, the national housing market was in sellers’ market territory in November with a sales-to-new-listings ratio (SNLR) of 66.3%. New supply declined 2.7% year over year, while the total months of inventory – the length of time it would take to completely sell off all available homes for sale – currently sits at 4.7 months, its lowest level since 2007.
This will be most acute in the hottest markets such as the Greater Toronto Area, which boasted a sizzling SNLR of 81% at the end of the year, indicating just under 20% of newly listed homes remained on the market.
That’s a growing concern for Toronto real estate prices; according to the Toronto Real Estate Board, as their Chief Market Analyst Jason Mercer stated, “Strong population growth in the GTA coupled with declining negotiated mortgage rates resulted in sales accounting for a greater share of listings in November and throughout the second half of 2019. Increased competition between buyers has resulted in an acceleration in price growth. Expect the rate of price growth to increase further if we see no relief on the listings supply front.”
Ontario and BC to Lead the Pack
As was the trend throughout 2019, the Ontario and BC housing markets will see the strongest growth, says CMHC; BC, in particular, is anticipated to experience a dramatic 20 – 22.6% surge as the region recovers from recently implemented foreign buyer and non-resident speculation taxes, totaling between 74,600 – 84,400 transactions. Home prices will rise between 2.8 – 3.6% to an average of $675,000 – $749,500.
In the Ontario real estate market, sales will hit between 204,200 – 213,800 units (+4.2 – 7.3%), with prices between $614,000 – $633,700 (+5.4 – 6.5%).
In contrast, overall volumes and growth will be much lower in the Prairie markets, where economic performance and spending power remain challenged by a downturn in the energy industry and housing markets are plagued by oversupply. In Alberta, 2020 sales will hit between 52,300 – 56,900 units (+4.1 – 4.2%), while prices will inch up to the $379,700 – $383,400 range (+1.9 – 2.9%). In Saskatchewan, sales are forecasted to reach between 10,800 – 11,200 (+3.8 – 5.6%), with prices between $275,100 – $283,900 (+0.5 – 1.5%).
No Rate Hike in Sight
Despite early 2019 rumblings that the Bank of Canada would increase its Overnight Lending Rate last year – which would have resulted in central banks hiking the interest on their variable-rate mortgage products – it did an about-face and kept its rate untouched throughout the year, due to international trade tensions and potential threat of recession.
While Canada’s economy has been shaping up strongly in recent months, the BoC indicated it would likely stick to its holding pattern this year, with a rate cut much more likely than a hike due to ongoing instability between the U.S and China, as well as in the middle east. Overall, the BoC indicated in its year-end speech, it will take to the same cautious stance it did in 2019; economic factors at home and abroad aren’t quite strong enough to warrant higher interest rates, but are stable enough to prevent a rate cut. Avoiding a cut also leaves some wiggle room in case global trade and recession risks do materialize, and the BoC needs to take action.
Last but not least, there could be changes to come for the aforementioned stress test – according to a federal mandate, the department of finance has been tasked with taking a second look at the measures, to potentially take a more “dynamic” approach. While it remains to be seen how these changes could play out, analysts are musing they could reduce the qualification hurdle – currently the BoC’s five-year benchmark of 5.19% – or reduce the criteria in slower housing markets.
Only time will tell to see how these potential changes will shape the 2020 housing market to come – though it’s sure to be a busy one for buyers, borrowers, and sellers alike.
Penelope Graham is the Managing Editor at Zoocasa, a full-service brokerage that offers advanced online search tools to empower Canadians with the data and expertise they need to make more successful real estate decisions. View real estate listings at zoocasa.com or download our free iOS app.
