Amid a growing body of evidence showing that Canada’s housing boom is steadily winding down, industry players have expressed apprehension for the coming year.
“I think 2018 is going to be a scary year,” Toronto-based insolvency trustee Douglas Hoyes told Reuters.
The fears do not appear to be unfounded: Interest rates have continued rising while mortgage credit has tightened. Outstanding home equity line of credit (HELOC) balances reached $211 billion in 2016, according to the Financial Consumer Agency of Canada.
Meanwhile, data from the Canadian Real Estate Association showed that Toronto benchmark home prices, which remove the distortion caused by expensive houses, are now down about 8% since the peak reached back in April.
Read more: With B20 around the corner, industry wary of coming year
Mortgage stress tests that coming into effect by January are expected to further cool down housing demand.
“I would guess we can see a 5% price decline in 2018 (in Toronto),” National Bank
Financial senior economist Marc Pinsonneault said.
Hoyes noted that many lenders have begun checking credit scores more regularly to find the riskiest clients – and then either adjust interest rates or deny HELOC requests to drive overextended clients elsewhere.
“That’s how lenders de-risk themselves ... they don’t want to tip you over the edge but would kind of like to get rid of you as a client,” Hoyes explained.
Canada ‘ripe’ for a severe housing correction – fund manager
OECD predictive model forecasts a 28% decline in home prices by 2020