Market Update

–        ..barring a shock to incomes or employment, several factors should help prevent another sustained deterioration in housing markets in 2019. Chief among these factors include another year of strong population growth, healthy labour market conditions and a more patient Bank of Canada

–        The turn in the real estate market has led the Bank of Canada to abruptly change their characterization of the housing market, dubbing it “weaker-than-expected” earlier this month rather than its previous reference to “stabilizing”

–        Since August, the extent of weakness observed in B.C. has been eyebrow-raising

–        Relative to our December forecast, the backdrop appears softer for housing markets across the country heading into this year, suggesting that even holding on to last year’s average sales levels and prices in 2019 could be challenging. Still, assuming no major negative shock to incomes or employment, markets should be able to escape an even worse outcome

–        Policymakers are preaching patience: Although the Bank of Canada maintains a tightening bias, the next hike likely won’t come until later in 2019, instead of early 2019 as previously expected. Notably, bond yields have moved significantly lower since November, which should feed through into lower mortgage rates

–        Several other factors should abet these positive fundamental forces. For starters the “bank of mom and dad” remains open, providing a valuable source of funding for first-time buyers. Secondly, although mortgage rates have risen, some households can mitigate the impact of these increases by stretching their amortizations or reverting back to the original amortization schedule if they undertook more rapid principal repayments

–        In Toronto and Vancouver, strong condo price growth has caused relative price gaps between single-family homes and condos to narrow significantly. This provides a window for move-up buyers to trade into larger units, thereby helping resale activity