Get ready for Canadian home prices to grind to a halt, then rise ‘slower and steadier’

Researchers predict Canadian home price gains will grind to a halt in the coming years — and when values do get on the road to recovery, the pace of growth won’t be anything like the last price runup.

Moody’s Analytics forecasts a “slower, steadier” Canadian housing market in its latest analysis, published this month. The economic research subsidiary of US-based financial services company Moody’s anticipates home prices will rise 0.5 percent this year — amid a spurt of income growth — before inching down 0.5 percent in 2020.

In the three years that follow, prices will pick up, but nowhere near the 13.4-percent annual increase observed in the fourth quarter of 2016 or the 7.7 percent gain in the same time in 2017.

The forecast, which uses pricing data from consultancy RPS, pegs sluggish price gains of 1.6 percent for 2021 and increases of 2.7 and 2.6 percent in 2022 and 2023, respectively.

Andres Carbacho-Burgos, director at Moody’s Analytics, says in one respect this is “good news” — but it’s not all positive.

“While the much slower price growth is good news for affordability, the likely downward pull on residential construction and on real estate agent and mortgage lender jobs across the country is starting to be felt,” writes Carbacho-Burgos in the report.

With these knock-on effects towards the economy already materializing, Canada’s central bank may have a tougher time stopping a recession from taking root, continues Carbacho-Burgos, who is unequivocal as to the cause of the downturn.

“The current housing market slowdown is entirely policy-caused,” he says.

A slew of provincial and federal policy moves — including BC and Ontario policy interventions such as foreign-homebuyer taxes as well as tighter mortgage rules and higher interest rates nationally — have taken the wind out of the market’s sales.

The brief boost income growth is expected to give the housing market this year will give way to these and other effects soon, Carbacho-Burgos suggests.

“From 2020 to 2022, income growth will slow as tighter credit starts to pull on spending,” he writes.

“Tighter credit will also halt the slight upward trend in consumer price inflation, while also pulling down on the growth of new-house and land prices due to reduced residential construction. All told, after 2019 there will be somewhat less underlying momentum for house price appreciation.”

Josh Sherman