It isn’t easy being a Canadian home buyer. Despite a low mortgage rate environment, steep demand and short supply have pushed housing affordability further out of grasp, especially in urban markets like Toronto and Vancouver – but these conditions could ease up in 2014, according to the year’s first quarterly Housing Market Outlook from CMHC.
The report posits this could finally be the year of the fabled “soft landing” for the housing market: meaning current red hot conditions will be scaled back without drastically hurting homes’ value.
According to a release from CMHC, “Support from improved economic and demographic fundamentals will be tempered by a combination of a modest and gradual increase in mortgage rates and a slowdown in demand from first-time buyers.”
Let’s break down the trends expected in CMHC’s early forecast.
Mortgage Rates To Rise, Demand To Slow
Despite the low rate and yield environment that has persisted since the beginning of the year (five-year fixed rates were discounted as low as 2.99 per cent this week), the CMHC expects mortgage rates to steadily rise over the long term. This will in turn deter would-be buyers from entering the market, especially the first time segment.
Less Clamour For Condos
Fewer first time buyers also mean a slowdown for the multiple housing units, as condos and townhomes are the most typical purchase type for this group. And it’s not just their purchasing power that’s shrinking – according to Statistics Canada, the population aged 25 to 35 is to decline in all regions except Quebec, this year and next, setting the stage for prolonged lagging in multiples.
Builders To Put On The Breaks
There may be fewer cranes crowding your city views in the years to come – with fewer active condo buyers on the market, builders will have to scale back on their condo projects to avoid oversupply. “With a relatively high number of units currently under construction, we expect builders will gradually adjust their activity in order to reduce their level of inventory,” said Mathieu Laberge, Deputy Chief Economist for CMHC. “Housing demand for resale market homes will continue to be sustained despite expected modest and gradual increases in mortgage rates toward the end of the forecast horizon.”
Sales And Starts To Remain Stable
Builders may be taking a more cautious stance with multi-housing units, but the construction industry in general will see steady growth on par with historical standards. The point forecast for total housing starts in 2014 is 187,300 – very close to the 187,923 in 2013. In 2015, starts are expected to range between 163,200 to 206,600.
MLS Sales are expected to grow slightly this year to range between 436,000 and 497,000, and up to between 443,400 and 506,000 in 2015.
Prices Will Continue To Rise
First, the bad news – housing prices will continue to rise in 2014 and 2015. The silver lining – the amount of new listings on the market will balance, easing the pressure on a red hot market seen in 2013, when sales outpaced new listings. This pushed prices up 5.3 per cent from 2012 levels.
This year, prices should rise just slightly above inflation, forecasted to be between $380,100 and $400,700, compared the average MLS resale price of $378,000 in 2013.
Economy To Pick Up The Pace
CMHC has taken an optimistic stance on how the Canadian economy will fare this year, forecasting that improving conditions will be a key support for starts and sales. The report put faith in a rebounding exports market, as well as increased spending among businesses. Employment numbers are expected to strengthen along with incomes – more money in Canadian pockets means our housing market isn’t likely to slow significantly any time soon.