As 2016 nears its end, we're all looking forward to what the next year will bring, and this week RBC economics released its November home resale and price forecast
"While we downgraded our housing market outlook, we remain of the view that our base case scenario would qualify as a soft landing posing little threat to the stability of the market, even in British Columbia," the report reads. "There is an unusually high degree of risk around this outlook, however, both on the downside and on the upside. Much of this uncertainty stems from the difficulty to gauge the market’s reaction to the new policy measures, as well as the potential for further policy intervention to cool the market—we assume none at the present time."
The number of home resales for 2016 in all of Canada is forecast to be 527,900. Next year, that number is expected to drop to 467,100, a decrease of 11.5 per cent. The biggest decrease in 2017 is expected to come from British Columbia, which will go from the 2016 forecast of 111,500 to 85,000, a drop of 23.8 per cent. The next biggest decrease in 2017 is expected to come from Newfoundland and Labrador, which will go from the 2016 forecast of 4,200 to 3,600, a decrease of 14.3 per cent. The province that offers a forecast of the smallest dip is Manitoba, whose home resales in 2016 are forecast to be 14,600, and go down to 14,200, a decrease of 2.7 per cent.
Home prices on the other hand, tell a different story. In spite of the federally imposed mortgage tightening rules and the foreign buyers tax in British Columbia, home prices are forecast to rise modestly in most of Canada, from a forecast of $441,800 to a 2017 forecast of $448,900, an increase of 1.6 per cent. Comparatively speaking, the overall rise in home prices from 2015 to 2016 is forecast to be 9.5 per cent.
Ontario comes out as the "winner" in the price game, as home prices there are forecast to move up 3 per cent from $480,900 to $495,400. Prices are expected to rise in each province except Newfoundland and Labrador, Alberta and Saskatchewan, in which home prices are forecast to drop 5.2 per cent, 1.9 per cent, and 1.7 per cent respectively.
2016 was a banner year when it came to both home sales and home prices, and RBC projects that by the end of 2016, home resales will increase by 4.4 per cent to an all-time high of 527,900 units. Four provincial markets – Prince Edward Island, British Columbia, Ontario, and Manitoba are expected to set new records. The overall benchmark price in Canada is expected to rise 9.5 per cent in 2016, which would represent the biggest advance in nine years. And in spite of the forecasted declines for 2017 due to recent policy action and affordibility conditions, RBC predicts the economic climate to favour housing demand due to continued low interst rates and growth in the economy and labour markets.
But, RBC warns, it's a forecast that has large risks to its conclusions, given that policy is playing such a big role in the outcome of various housing markets, and since they're "largely in the dark" about what will trigger even further policy changes.
"Earlier rounds of
mortgage insurance rule tightening in Canada provide only partial guidance for assessing the current episode because, among several contrasting factors, we do not expect interest rates to fall to soften the blow this time around—such that we will be in largely unchartered territory. And second, the potential for further policy intervention continues to be higher than usual at all levels of government and across all regulatory bodies. There are genuine concerns being expressed by policymakers and regulators about affordability in a number of ‘hot markets’ and the longer-term financial health of households which could well prompt additional measures."
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