Housing markets in big Canadian cities are heading towards stability this year — not a crash — and while that’s good news for the economy at large, homebuyer hopefuls looking for more affordable options will be disappointed.
“A soft landing is in the cards. Not welcome news for potential homebuyers, as affordability will only worsen in the year ahead,” writes John Stackhouse, senior vice president, office of the CEO of RBC, in analysis published this month.
Stackhouse, also the former editor-in-chief of the Globe and Mail, notes an environment of low interest rates in recent years supported home price increases. Low rates fueled demand from homebuyers.
“But just because rates are now rising, don’t expect a major decline in 2019,” he says.
Although the cost of borrowing has increased as the Bank of Canada has hiked its policy rate five times since July 2017, Stackhouse suggests certain fundamentals should support housing markets, even the priciest ones, this year.
“We see prices in Canada’s major cities holding steady in 2019, thanks to Canada’s lowest unemployment rate in more than 40 years and the fastest-growing population in the G7,” he writes.
Concerns have been raised about high household debt in Canada, given the cost of servicing debt is rising, and economists expects more Bank of Canada policy rate hikes are coming.
But Stackhouse puts average debt levels in perspective. “The average household will pay $1,000 more to service its debts. Some good news: we expect household incomes to rise more than that,” he explains.
That’s not to say there won’t be any economic impacts. “Expect some belt-tightening in 2019 as households cut back on big ticket items like new cars and trucks,” says Stackhouse.