The Canadian Real Estate Association (CREA) has cut its home sales forecast for next year due to the impact of tighter mortgage regulations that come into effect New Year’s Day, which are expected to rein in spending for some buyers.
CREA said in an updated projection late last week that the banking regulator’s revised mortgage underwriting guidelines, which include a stress test for uninsured mortgages, will reduce sales activity across the country, particularly in and around Toronto and Vancouver.
The association now forecasts a 5.3% drop in national sales to 486,600 units next year. That new estimate shaves about 8,500 sales from its previous 2018 forecast.
“With some homebuyers likely advancing their purchase decision before the new rules come into effect next year, the ‘pull-forward’ of these sales may come at the expense of sales in the first half of 2018,” CREA said in a statement, as quoted by The Canadian Press.
“Meanwhile, other potential homebuyers are anticipated to stay on the sidelines as they save up a larger down payment before purchasing and contributing to a modest improvement in sales activity in the second half of 2018.”
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In October, the Office of the Superintendent of Financial Institutions (OSFI) announced the final version of its revised guidelines, called B-20. The new rules, which come into effect on January 1, require would-be homebuyers to prove they can still service their uninsured mortgage at a qualifying rate of the greater of the contractual mortgage rate plus two percentage points or the five-year benchmark rate published by the Bank of Canada.
CREA argued that the new guidelines make it tougher for potential buyers with more than a 20% down payment to qualify for a mortgage. These low-ratio mortgages comprise the vast majority of Canadian mortgage originations, it added.
The association also narrowed its forecast for national sales activity this year. It projected sales to decline 4% to 513,900 units in 2017 due to weak activity in Ontario, after the province in April announced measures such as a foreign buyers tax to cool the market.
However, the association is expecting the national average price of a home to rise this year to $510,400, up 4.2% compared to 2016.
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