By Penelope Graham

If the 2019 housing market could be summed up in one word, it would be “rebound” – most of Canada’s major urban markets saw sustained improvement in sales and price growth in the second half of the year, following the slump that plagued activity throughout 2017-2018. Now, as we look forward to 2020, the stage appears set for that upward movement to continue. How will that play out for buyers, sellers and mortgage borrowers? Let’s take a look at some of the most prevalent forecasts for the coming year.

Home sales are recovering from the stress test:

It’s no secret that the federal mortgage stress test, put in place by Canada’s banking regulator in January 2018, took a considerable bite out housing markets across the nation. The test requires insured mortgage borrowers to prove they could qualify for a mortgage at the Bank of Canada’s five-year benchmark rate – currently 5.19 per cent – while non-insured borrowers must qualify either at this rate or their contract rate plus two per cent, whichever is higher.

As a result, fewer buyers found themselves able to get A-level home financing, forcing them to either downsize their home purchase, seek alternative lending options, or sit out the market altogether. In all, Canada Mortgage and Housing Corp. reported the stress test dampened new mortgage lending to the slowest rate of growth in 25 years in 2018, at a pace not seen since the 2008 recession.

However, home buyers began to overcome these adverse effects in 2019; coupled with historically low mortgage rates, that led to a continued improvement in sales in the Greater Toronto and Vancouver areas, as well as a number of secondary markets.

Both CREA and CMHC are forecasting sales and price growth to continue steadily throughout 2020. The national association has called for a total of 530,000 transactions this year, an annual increase of 8.9 per cent, with the national average price climbing 6.2 per cent to $531,000.

CMHC says sales and prices are on track to “fully recover” from 2018’s declines, as home buyer incomes improve and Canada’s job markets experience population booms.

“Overall, economic and demographic conditions will remain supportive of housing activity over the forecast horizon, halting the declines in starts, sales and average home prices that followed the highs of 2016-2017,” it states in its most recent Housing Market Outlook. Nationwide, CMHC expects 2020 sales to fall between 480,600-497,700 units, a year-over-year uptick of roughly six per cent. The average price will fall between $506,200-$531,000, up 5.6 per cent-6.7 per cent from this year.

The return of the seller’s market – at least, in Toronto:

While home sales steadily improved over 2019, the same can’t be said for the supply of new listings. According to CMHC, new supply shrank by -2.7 per cent year over year in November, resulting in a national sales-to-new-listings ratio of 66.3 per cent – well within sellers’ market territory. The total months of inventory – the length of time it would take to completely sell off all available homes for sale – currently sits at 4.7 months, its lowest level since 2007.

This was particularly notable in the Greater Toronto Area, where concerns of a supply-and-demand gap have grown over the past year. The end-of-year numbers from the Toronto Real Estate Board reveal the SNLR for the region was 81 per cent, indicating just under 20 per cent of all new listings brought to market were left unsold.

“Strong population growth in the GTA coupled with declining negotiated mortgage rates resulted in sales accounting for a greater share of listings in November and throughout the second half of 2019,” says Jason Mercer, TREB’s chief market analyst. “Increased competition between buyers has resulted in an acceleration in price growth. Expect the rate of price growth to increase further if we see no relief on the listings supply front.”

Cheap mortgages will stick around:

The silver lining for home buyers in 2020 will be a relatively inexpensive cost of borrowing, as it’s highly unlikely the Bank of Canada will usher in a rate hike anytime soon. The national bank kept its trend-setting Overnight Lending Rate at 1.75 per cent throughout 2019, allowing consumer lenders to keep their variable mortgage rates competitively priced, and yields in the bond market low, which impact the pricing of fixed mortgages.

The BoC has indicated it plans to hold status quo this year as well, barring any unforeseen economic upset – and in that case, a cut would be in the cards, rather than a hike.

Overall, the BoC will take the same cautious stance it did in 2019; economic factors at home and abroad aren’t quite strong enough to warrant higher interest rates but are stable enough to prevent a rate cut. Avoiding a cut also leaves some wiggle room in case global trade and recession risks do materialize and the BoC needs to act.

Tension over U.S.-China trade relations, as well as growing unease in the Middle East, in particular, will inform the BoC’s careful approach.

Finally, there may also be relief on the way for those who continue to have their affordability hampered by the stress test. In a mandate to the federal Department of Finance, the Prime Minister’s Office has implored the finance minister to explore making the test more “dynamic”.

While it’s not certain what form these changes could take, there’s speculation that its higher-interest qualification hurdle could be reduced, or perhaps adjusted for borrowers with good credit. As well, they could remove the current requirement for borrowers to be re-stress tested when switching lenders, a measure that has drawn heavy criticism from the mortgage industry for discouraging consumer empowerment and competitiveness.

In all, it’s already shaping up to be a busy year for the real estate industry, and it will be interesting to see how growth clocks in within Canada’s major markets as the first year of a new decade unfolds.


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