3 issues facing the Canadian housing market in the final quarter of 2018

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The third quarter of 2018 brought some warmth to the Canadian housing market, as both sales and prices began to inch upwards after months of cooling activity.

But now a few weeks into the final quarter of the year, the market is facing some potential headwinds that could take things off course. This week, the Bank of Canada hiked the overnight rate to 1.75 percent, a move that some commentators believe could put downward pressure on home sales.

For a closer look at issues affecting the market in the final months of 2018, Livabl has rounded up the latest industry commentary, to keep you in the know.

Affordability is still a concern for many

Despite an easing of home prices over the past year, some would-be home buyers are staying on the sidelines, deterred by the lack of affordable options of Canada’s hottest housing markets.

More than one-third of buyers have concerns around buying a home, according to a poll by the Canada Mortgage and Housing Corporation (CMHC) released last week. The survey results were comprised of 4,000 recent mortgage consumers who had qualified for mortgages in the past year.

“When compared to other factors such as type of neighbourhood, proximity to work and overall condition of the home, almost twice as many first-time buyers reported price/affordability as being the most important factor when buying a home,” reads the CMHC release.

Those concerned about housing affordability should brace for prices to continue to rise in the near future. The price of a Canadian home rose 2.2 percent last quarter to $625,499, a trend that is likely to continue into 2019, according to a recent pricing forecast from Royal LePage.

Interest rates are on the rise

Higher interest rates inevitably lead to higher mortgage rates, which means industry players keep a close eye on the BoC’s hikes, and how they could affect Canada’s housing market.

Rising rates could spook would-be buyers, placing downward pressure on the market. And, according to CIBC economist Avery Shenfeld, it looks like the Bank might be hiking rates at a faster pace heading into 2019.

“The tone [of the Bank’s announcement this week] was more hawkish than we expected, dropping the reference to “gradual” for hikes ahead (which markets will see as leaving the door open for two in a row, meaning a hike in December), and asserting that rates will have to keep climbing to “neutral”, which the Bank has estimated as near 3 percent,” Shenfeld wrote, in his most recent note.

Overvalued markets

Most Canadian housing markets have seen overvaluation concerns ease over the past year, as housing activity continues to adjust to rising interest rates and stricter mortgage rules. But, according to a new release from the Canada Mortgage and Housing Corporation (CMHC), some markets remain in a vulnerable position.

CMHC listed Vancouver, Victoria, Toronto and Hamilton as cities with a “high degree of overall vulnerability,” singling out Montreal as a market with particularly worrying market conditions.

“Montreal’s resale market is close to overheating, creating significant upward pressure on prices as a result of a sharp tightening between supply and demand,” reads the CMHC release.

“The active listings-to-sales ratio, continued to decrease, thereby also showing the Montreal resale market has been tightening and increasingly favourable to sellers,” writes Marie-Claude Guilotte, an economist for CMHC.

Sarah Niedoba

Sarah Niedoba

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“It’s a people business in a complex industry that is consistently changing. My role is to take the stress out of homeownership and represent your best interests until you are mortgage-free.”

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