A year in review: Top 3 policy developments impacting Canada’s housing market

Be it personal or business, January is a time for reflection. A lot can happen over 12 months and we know staying up-to-date on everything going on at CREA can be difficult. Over the next few weeks, we’ll be taking a look back at the year that was in Canadian real estate. Have something to add? Feel free to share in the Comments section below. 

Let’s take a look back at the top three policy changes to leave boot prints on the Canadian housing market in 2017 and promise to leave their mark in 2018 and beyond:

  1. Interest rates: going up

After leaving its trend-setting overnight lending rate on hold at unprecedented lows for almost seven years, the Bank of Canada hiked it twice by one-quarter of a percentage point in July and September 2017.

Additional interest rate hikes are widely expected in 2018, but they will likely be small and paced haltingly. The Bank of Canada wants to avoid creating a made-in-Canada recession by hiking interest rates by too much and too quickly – which it recognizes is a definite risk if it were to do so while Canadian households are so deeply in debt.

  1. Ontario’s Fair Housing Plan

In April, the Ontario provincial government announced measures aimed at cooling red-hot housing markets in the Greater Golden Horseshoe (GGH) region which includes the Greater Toronto Area (GTA) and other markets within a two-hour drive (or thereabouts in rare good traffic).

The “Plan” expanded rent control to all rental housing (previously, it applied only to rental housing built before 1992). It also introduced a 15% foreign buyers (Non-Resident Speculation) tax.

When announced, the “Plan” immediately threw cold water on previously feverish home buyer sentiment and sales activity followed suit across the GGH.

More recently, sales there have begun to rebound and the balance between supply and demand has firmed. In fact, at the time of writing, the number of months of inventory in every GGH housing market is below or within short reach of the long-term average.

That’s fundamentally supportive for home prices in the region.

Additionally, rent control on all rental units virtually guarantees the short supply of rental accommodation will persist and keep the vacancy rate drum-tight in the GGH.

  1. Mortgage regulations mean more stress

Federal mortgage regulations were tightened yet again in 2017. Announced in October, the new rules came into effect as the ball dropped on 2018. Now, federally-regulated financial institutions will have to qualify all home buyers for mortgages based on either the benchmark five-year mortgage rate or the mortgage rate being offered plus 2%, ­ whichever is higher.

The benchmark rate is published by the Bank of Canada every Wednesday. At the time of writing, it stands at 4.99%. That’s well above the five-year fixed mortgage interest rate advertised by many of Canada’s big banks or other mortgage lenders.

The new “stress test,” introduced by Finance Minister Bill Morneau, piles onto the one previously applied only to mortgages for home buyers with less than a 20% down payment. Now stress tests will apply to all home buyers regardless of the size of their down payment relative to the size of the mortgage.

As CREA’s former Chief Economist, Gregory Klump provided his views on the state of and outlook for Canadian housing markets to news media, policy makers, and real estate industry stakeholders. In 2017, Gregory celebrated his 25th anniversary as a member of the team at CREA. He’s an avid skier and snowboarder during the winter and a year-round Crossfit enthusiast.

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