The Canadian economy is showing cracks in its foundation and, beginning with turmoil in Alberta, they will reverberate through the coming year.
Alberta’s oil glut in tandem with the federal government’s inability to build pipelines is having country-wide ramifications.
“The federal government has not been able to get its pipelines done and it’s really hurt the prospects of the Canadian economy,” said Mortgage Outlet’s Principal Broker Shawn Stillman. “That, along with the closing of the GM plant in Oshawa—eventually there will not be a GM plant in Canada—and I can see the Canadian and U.S. economies taking downturns.”
Even if the province goes ahead with a railcar transportation option, too much time will pass in the interim.
“They’re not going to have any way of getting their oil out,” said Ron Butler. “If they buy railcars, they won’t come on stream until November of next year.”
Stillman expects fixed rates to be up to 0.5% higher in 2019 because of the variable rate spike and, specifically, how much more expensive it is for lenders to fund mortgages in light of repeated government intervention in the market.
“It’s become a lot more expensive for lenders to do mortgages with all the government intervention and the level of insurance they have to carry and their capital expenses,” he said. “It means higher rates. Banks are 1.8% above the five-year government bond rate and they’re happy to make a profit. Banks want to make up for their lower volume through higher rates, so they’re making more off every deal because it’s no longer a volume play.”
The Greater Toronto Area isn’t likely to change much next year. While there isn’t necessarily anything to make it worse, there doesn’t appear to be anything on the horizon that will improve it, either.
“There will be a softening of values, lower sales units and reduced total mortgage originations across the province,” said Butler. “There will be a tiny softening on the price side. Bear in mind that this year was down and next year will be even less so. There’s nothing that will improve it. Will the economy get better? No chance of that. Are mortgage rules suddenly going to be revised so that it will be enormously easier to get a mortgage? No chance.”
Condo sales will be strong in Toronto proper next year, but the 905 will be languid and so will the single-family detached market.
“Toronto is a tale of two markets,” said Stillman. “Condos and houses, and people aren’t just buying for investment purposes.”