Mixed reports starting mid-November 2018 began coming out on the Canadian housing markets. In December 2018 analysts gave a prediction of overall Canadian home prices rising by 1.7 percent in 2019 yet a set of outliers keep cropping up both positive and negative outlooks. On the positive side, Chilliwack, Windsor, London (Prince Edwards Isle) and Charlottetown have had double-digit sale price percent gains in their real estate markets.
Though predictions list the anticipated market to continue stabilizing those areas should have positive sales gains in 2019. Other markets due to a variety of local factors may experience a falling in sales price. Add in that Canadians have a significant concern about rising interest rates making housing not as affordable the market could produce some troughs in some regions rather than crests.
Concerned about debt, home prices and interest rates in the market that would put purchasing a home out of reach for many Canadians, the Chartered Professional Accountants of Canada (CPA Canada) did a research study and discovered the following: 88 percent of Canadians in 2017 who borrowed money had high credit quality; A small pool of lenders do the mortgages presently; a heavily regulated banking system gives mortgages
Despite the assurances, high housing prices and rising interest rates do have a significant impact on Canadians considering buying a home. In recent years a steep rise in non-regulated lenders entering Canadian real estate markets has occurred. It creates a set of Canadians who are not as protected from the ravages of unemployment or volatile markets as the heavily regulated side is. It shows up in regional areas such as British Columbia.
British Columbia real estate
Now the mid-December reports from Central 1 Credit Union claim a mild recession occurring in the region. Prices have dropped and construction of buildings has decreased. For 2018, British Columbia had a 17 percent decline in housing transactions. The median price continued to rise by six percent to reach a total of $530,000. In a short time, analysts predict a two percent decline minimal for 2019. Vancouver, Kelowna, Victoria and Abbotsford-Mission had a combined sales total 40 percent less than the year before.
British Columbia housing market directly contrasts to the national market. Canada has provinces and each province has a say in policies in their region. British Columbia has extremely stringent mortgage qualifications. The interest rates have been higher. Despite the assurance of CPA Canada apparently, strict mortgage rules and higher interest rates in some circumstances can downturn a housing market.
A set of highly qualified buyers became shafted when the new mortgage rules hit. Now that those buyers have experienced that they have become reluctant to purchase homes with the new mortgage rules. Doing a quick turn around sales on homes after a recent purchase a few years ago will mean selling the house at a lower price than purchased which stagnated the market.
Homes will become more affordable in the area, but the strict mortgage rules will disqualify many highly qualified buyers. The impact may take several years to adjust to.
In the spring, Simon Fraser University assistant professor Josh Gordon, who was researching public policy warned the Canadian government about possible issues in the British Columbian economic system. The region had experienced unusual soaring of real estate pricing and it tilted the British Columbian economy in a negative way. Real estate accounted for 18 percent of the gross domestic product in the region as reported by the government for the years 2016 through 2017.
The professor concluded if construction building becomes added to the mix it increases it to 25 percent. In long-term simulations that scenario has a negative impact on the local economy. Finance ministers in the government have been aware of the dependency of the British Columbia economy on real estate. The tax revenue from construction does not become permanent or long term.
In conclusion, the real estate in Canada tells a bigger picture about the industry: Housing that remains unaffordable for the population means industries do not consider the area a destination for commercial building, yet at the same time, it also doesn’t help the economy if housing values remain low.