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Here’s why Canada’s red-hot housing market may be cooling, but won’t be crashing

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by Julian Compton
October 21, 2016
Category:   Toronto Real Estate

The Canadian housing market can expect slower price growth over the next five years, but fears of a national housing crash may be overblown, according to a Moody Analytics report released this week.

The report, which cites Brookfield’s housing price index for its data, states that house prices for detached single family homes are expected to increase by nine per cent this year and 2.9 per cent annually over the next five years.

However, the report cautioned that some metropolitan areas will experience modest price declines.

“There has been a lot of speculation about Canada’s housing markets overheating during the past two years,” said Moody’s economist Andres Carbacho-Burgos.

“The house price outlook calls for a deceleration of house price growth, not for a serious decline, though there are exceptions for smaller regions.”


Four out of five of the strongest metropolitan areas for annualized house price growth over the next five years are in Ontario.

Barrie, Ont., could be the top performer with house prices expected to increase 7.9 per cent a year over the next five years, followed by Toronto and Oshawa at 6.7 per cent per year.

“Toronto and possibly Oshawa benefit from strong foreign capital inflows, and most of the metro areas in Ontario also benefit from good projected income growth and from the lack of any extended house price correction in the historical data, pointing to weak mean reversion effects thanks to non-measurable factors such as wealth and good mortgage credit quality,” read the report.

Saint John, N.B., also made the top five – with prices expected to increase at an annual rate of 4.9 per cent over the next five years – thanks to “extended weakness” in the housing market from 2011 to 2015, leaving a large portion of the area’s housing undervalued.


Saskatoon, Edmonton and Regina round out the bottom of the list as the weakest performers, with prices expected to fall 0.9 per cent, 1 per cent and 1.8 per cent respectively.

“Edmonton, Regina, Saskatoon and St. John’s, Newfoundland and Labrador all suffer from slow income growth due to a combination of low oil and other commodity price forecasts,” read the report.

“Calgary does significantly better thanks to a more diversified economy and stronger projected household formation.”


READ MORE: Some Canadian real estate markets could be in for a massive correction

The report comes after the Canada Mortgage and Housing Corporation (CMHC) announced it will issue its first “Red Alert” for the national housing market later this month. The CMHC says it believes there is the potential for major price corrections in the Toronto and Vancouver market thanks to skyrocketing real estate prices.

Earlier this month new federal mortgage rules were put in place to try to stabilize the country’s housing markets. The rules involve a stress test for all insured mortgage applications to ensure the borrower can still service their loan in the event interest rates rise or their personal financial situation changes.




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