The Canadian housing market has been booming all year, but a recent wave of government regulation will shift the momentum in 2018. Markets like Vancouver and Toronto will likely get hit the hardest by the expected slowdown.
- Home prices and buyer demand will decrease in 2018
- Rising interest rates will drive some of the housing market correction
- Canada’s economy will slow in tandem with its housing market
A series of new regulations and interest rate hikes are beginning to slow Canada’s red-hot housing market. According to Royal Bank of Canada economist: “rising interest rates will drive the next phase of the [housing market] correction in 2018, as higher rates add to strained affordability in major markets that ultimately tamps down on homebuyer demand.”
The housing market plays such a significant role in the economy that the expected slowdown will likely slow Canada’s overall economic growth. “Economic growth is anticipated to moderate [in 2018], partly reflecting a return to a more sustainable pace of housing activity,” according to TD senior economists Leslie Preston and Brian DePratto.
Tighter mortgage regulations are a huge part of the slowdown. Over the past year, Canada’s federal government introduced multiple waves of rules to help cool its hottest markets like Vancouver and Toronto.
One big change is the new mortgage stress test that went into effect at the beginning of the new year. Under the change, all insured mortgage borrowers are required to qualify against the Bank of Canada’s five-year benchmark rate – or prove they can still make mortgage payments if rates were raised two percentage points.
“We can expect residential investment to slow down next year after the new restrictive guidelines come into effect,” reads the latest Desjardins report. “The recent growth leaders, Ontario and British Columbia, could be particularly hard hit by the expected slowdown in the housing market. As we know, Toronto and Vancouver are where the housing market grew so extensively in recent years.”