As another New Year dawns upon us, many Canadians are asking themselves, “What will happen in the Canadian Real Estate market in 2014?”
Aside from the fact that there is no such thing as the “Canadian” Real Estate Market - in other words, real estate is a collection of local markets - there are a few themes that apply to the country as a whole going into 2014.
Let’s break down the year in review and take a look at the year to come with our Real Estate Winners and Losers predictions:
2013 - The Bubble that Didn’t Burst? Or Exist?
A search of Nationalpost.com for the term “housing bubble” brought up 326 articles on that site alone...and there were many more articles, blog posts, and tweets on the subject throughout the year. All the talk about a housing bubble bursting still failed to produce the foregone conclusion, which is good news for Canadians.
So what went wrong for the doomsayers?
- Jobs - we had them
- Low inflation - had that too
- Interest rates stayed low
- Affordability in many markets was on par with historic averages
- Regional strength in Alberta and Saskatchewan
What can we expect for Real Estate in 2014?
Here is a list of things that you can expect to see change in Canada in 2014 as it relates to real estate and the housing market.
Mortgage Rule Changes
If Finance Minister Flaherty decides to tinker further with mortgage rules in hopes of slowing down borrowing then we won’t likely have a lot of advance notice and it will likely make qualifying for a conventional mortgage more difficult. The likely choice here is that we could see 30 year amortizations on conventional mortgages go away. Another possibility is that we could see mortgage insurance premium increases.
Prediction: One rule change - dropping 30 year amortizations.
Changes at CMHC
Minister Flaherty has also been musing about CMHC’s role in the housing market and how it has evolved beyond it’s initial mandate, so it’s possible that it will see the scope of services offered reduced. What’s likely to go? Bulk insurance for conventional rate mortgages could be reduced, eliminated, or offered at the same 90% guarantee that private insurers can offer. We’re not sure what to expect but change is in the air at CMHC and I suspect that there will be populist moves here to satiate the media and shield Canadian taxpayers from risk - real or perceived.
Prediction: Tapered reduction in bulk insurance on conventional mortgages, leading to the elimination of conventional loan coverage.
Interest Rate Increases
The beginning of the end of fiscal stimulus in the US will make bonds less attractive, increasing yields and bringing interest rates up with them. By how much? A stock market correction could push people back towards bonds and derail any increases.
Prediction: 50 basis points higher on average by year end. Slight increase in Q1, followed by highly competitive Q2 and Q3, ending the year up.
Less New Supply
It’s probably safe to say that they won’t be building a gazillion new condos in Toronto for awhile while the market soaks up that new inventory. Markets where strong job growth is happening will see an increase in new construction in hopes of serving the demand, but overall I expect a moderation in new construction across the board.
Prediction: New construction will be flat.
Jobs will continue to drive migration, demand for housing, and real estate prices. Markets that depend on exports may benefit as the Canadian dollar recedes from its par status with the US dollar. Markets like Edmonton, Calgary, Saskatoon and Regina will continue to be strong and attract new migrants from out of province and out of country. As foreign markets recover demand for natural resources will grow and support Alberta, BC, and Saskatchewan.
Confidence is a big part of the economic equation and it looks like Canadians are more confident about their job prospects.
Prediction: Job growth will improve demand for houses.
Will inflation rear its ugly head? No...not this year. Maybe next. Or the next after that. When it hits though I think it will hit hard as a result of monetary expansion in the US.
Prediction: Inflation rate below the 2% target set by the Bank of Canada by 1%.
Higher rates will slow things down a bit but a rebounding US economy may benefit some export and natural resource sectors. Expect a slight increase vs. 2013’s growth rate.
Prediction: 2% GDP growth.
Canadian consumers have been told for a long time how dangerously high their debt levels are...so they’re paying that down. This will reduce the overall risk profile of a typical mortgage borrower for lenders and CMHC. Arrears will remain low even with modest rate increases.
Prediction: 5% reduction in consumer debt.
Over the past ten or eleven years in this profession I’ve learned that change is the only constant.
Will there be surprises? Absolutely! Will some of them be good? You bet..and some will hurt a bit. I think the lesson, as always, is to buy and borrow within your means, work hard, don’t read the newspaper daily for long-term strategic things like real estate, and enjoy the year.
Check back here from time to time to see how I did on my predictions, and if you’d like, check out CMHC’s predictions below for a more detailed region-by-region breakdown: