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Canadian Mortgage and Housing Corporation’s outlook on the housing market

CMHC has released its latest Housing Market Outlook which is released annually at the beginning of the fourth quarter and looks ahead over the next two years.

In general CMHC sees a stable, but slowing housing market.

Housing starts are expected to decline over the next two years as the economy strengthens and the Bank of Canada withdraws stimulus – that is, interest rates continue to rise.

CMHC is forecasting posted, 5-year mortgage rates of 4.9% to 5.7% next year and 5.2% to 6.2% in 2019.  That is an increase of as much as 160 bps over the time horizon of the outlook.

Existing home sales are forecast to drop.  This should be no surprise given the record setting pace of sales through 2016 and early 2017.  As well, the pace of price increases is expected to slow down.

CMHC predicts the national average price for a home should fall somewhere between $494,000 and $511,000 this year.  In 2019 the range is expected to be between $499,000 and $524,500.

CMHC is also forecasting ongoing growth for GDP, employment and immigration.  But the agency expects consumer spending to decline as interest rates increase.

To download the report, click here

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October 2017 home sales were 15% above the 10-year October sales average.

Sales-to-active listings ratio for September 2017 was 33.1% for all property types

Sales-to-active listings ratio for different property types:

  • 16.8% for detached homes (balanced supply and demand)
  • 44.8% for townhomes (seller’s market – upward pressure on price)
  • 66% for apartments (seller’s market – upward pressure on price)

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REBGV president Jill Oudil reported: “Conditions continue to vary significantly based on property type. The detached home market is well supplied with homes for sale, which is relieving pressure on prices. It remains a much different story in the townhouse and apartment markets. Buyers of these properties continue to have limited supply to choose from and are seeing upward pressure on prices.”

“The growth in our provincial economy and job market is contributing to today’s demand,” Oudil said. “The federal government’s announcement of plans to tighten mortgage requirements for the seventh time in the last eight years also helped spur activity in the short term. Many buyers are trying to enter the market before the changes are in place.”

Click here for full report

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New controversial mortgage stress test

The biggest news in real estate this past month is no doubt the controversial mortgage stress test.

It will be aimed at people with heavier debt loads and at least 20% equity. Given where Canada’s home prices and debt levels are, this is easily the most potent mortgage rule change of all time.

It’s like a two-point rate hike: Uninsured borrowers can qualify for a mortgage today at five-year fixed rates as low as 2.97%. At the beginning of next year, that hurdle will soar to almost 5%. Meaning, you could need upward of 20% more income to qualify for the same mortgage that you could get today.

The Office of the Superintendent of Financial Institutions (OSFI) said this change will make sure people can afford much higher rates and it will substantially increase the quality of borrowers at Canada’s banks. OSFI argues that this will insulate our banking system from economic shocks.

In a Globe and Mail article, critics say this new mortgage stress test will push borrowers to riskier lenders, click here to read the article.

Many questions were raised:

  • Whether this was all necessary, given already slowing home prices, provincial rule tightening, rising rates and the fact that uninsured default rates are considerably lower than for people with less than 20% equity.
  • Does growing debt risk in the non-prime mortgage market, combined with home price risk and a potential drop in employment and consumer spending truly lower banks’ risk?

Industry economists like Will Dunning said scores of borrowers will be forced to defer buying, pay higher rates, find a co-borrower and/or put more money down to qualify for a mortgage. Click here to see the video.

OSFI says its responsibility is to keep banks safe and sound. Overly concerning itself with the side effects of its mortgage stress test is not its mandate.