The national organization representing Canada’s realtors said Thursday it has been forced to adjust downward its forecast for both prices and sales, blaming new federal policies for its revised projections.
The Ottawa-based Canadian Real Estate Association, which represents about 100 boards across the country and more than 110,000 realtors, says national sales activity in 2016 will rise 6.2 per cent from a year earlier to 536,700 and set a record in the process.
But 2017 will see a 3.3 per cent drop in sales and the average price of a home is expected to fall by 2.8 per cent to $475,900 after reaching a record $489,500 in 2016. The last time Canada saw a national home price decline was in 2008.
“Mortgage regulations were further tightened following CREA’s previous forecast. In the near term, tightened regulations are expected to reduce the number of first-time buyers who qualify for mortgage financing, particularly in pricier markets where there is a severe shortage of lower-priced listings,” the organization said in a release.
Among the key changes brought in by the government in October was a stress test for any mortgages that are backed by Ottawa. Consumers must now qualify based on the posted five-year fixed rate, now 4.64 per cent, instead of the much lower rate on their contract.
Ratespy.com says consumers are currently able to borrow at as low as 2.18 per cent on a five-year fixed rate mortgage. Qualifying based on the posted rate has shut out some consumers because it ultimately means they must have the ability to pay a much higher monthly mortgage payment.
“Tightened mortgage regulations and lending guidelines are also expected to increase capital costs for lenders, resulting in modest increases in mortgage interest rates in the New Year. These regulatory headwinds were not a factor at the time of CREA’s previous forecast, and have resulted in downward revisions to the forecast for sales and average price in 2017,” the real estate group said.
The new forecast was released on the same day as CREA’s monthly numbers for November which showed the number of homes trading on the Multiple Listing Service system dropped 5.3 per cent from a month earlier on a seasonally adjusted basis — the largest percentage since August, 2012. Sales are now at their lowest level since September, 2015.
“November was the first full month in which the expanded stress-test was in effect for home buyers with less than a 20 per cent down payment,” said Cliff Iverson, president of CREA, in a release. “The government’s newly tightened mortgage regulations have dampened a wide swath of housing markets, including places not targeted directly by the government’s latest regulatory measures.”
CREA said its Aggregate Composite index for the entire country was up 14.4 per cent in November from a year ago to $581,400 but the year over year increase was down from 14.6 per cent in October.
“Canadian housing market results for November suggest that Canada’s housing sector is unlikely to be as strong a source for economic growth as compared to before mortgage regulations were recently tightened,” said Gregory Klump, chief economist with CREA.
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